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ACM Update Monday 8th February 2021

The major central banks of the world were in the spotlight again last week. Talking points ranged from negative interest rates, bond buying, unemployment & inflation, to vaccinations, recessions & economic recovery. Even a couple of former central bankers got in on the act regarding politics and climate change. Through all of this, the pound continued its positive march onwards into 2021.

Sterling to the fore again this week.

Central bank meetings are generally formed of two parts with the market statement itself and then the subsequent press conference afterwards. Given the current global economic situation, interest rates themselves are almost certain not to rise any time soon, so the talk around further economic stimulus, bond buying, and future economic expectations has been the main market force recently.

That theme continued last week and Tuesday saw the latest bulletin from the Reserve Bank of Australia (RBA),who announced an extension of their bond buying scheme by a further A$100 billion. RBA Chief Philip Lowe also went on to say that he does not expect to be raising interest rates until at least 2024, highlighting ongoing inflation and unemployment concerns as the main constraint. This didn’t cause much change in direction for the Aussie, still strong versus the USD and Euro, but losing ground against the resurgent Pound. GBP-AUD has gained over 3.5% in the last month, but will we see a push through 1.80? Only time will tell.

The Bank of England (BoE) were next up on Thursday and unlike recent narrative from the European Central Bank (ECB), they were direct with their approach. Recent conferences from Christine Lagarde haven’t helped reassure the market that all is well in the Eurozone. Governor of the BoE Andrew Bailey confirmed the UK economy is expected the shrink by 4.2% in Q1 of 2021, but expects it to rebound strongly with a successful vaccine programme. This combined with a firm line on negative interest rates now being off the cards, saw sterling gain over a cent in the following hour. Please reach out to the team if you have any upcoming Euro requirements and we will work with you on the best approach.

GBP-EUR continued its positive trend last week up to nine month highs.

Vaccination rates are still driving currencies strongly which is another reason for the recent GBP strength versus the Euro. The UK is now past 10 million vaccinations given, which as a percentage of the population works out as 15%, putting it fourth globally ( behind Israel, UAE & Seychelles respectively). The Eurozone’s struggles with getting its’ vaccines delivered on time continue to impact the currency.

As mentioned in previous updates, the Pound has had a great start to its post-Brexit life in 2021, continuing to hit fresh highs against the Euro ( best since May 2020) and the Dollar (best since April 2018) this week. The charts included here show recent moves, but it is important to highlight the percentage changes seen of late as these are what impact/benefit your back pocket. Sterling is up by 5.5% against the Euro in three months, and by 8.5% against the Dollar in just over four months. As the old saying goes “a bird in the hand is worth two in the bush”, which should be the approach for Euro and Dollar buyers at the minute. Securing a good proportion of your exposure at current levels will put you in a great position for the coming months whatever happens.

After a bumpy week, Sterling-Dollar finished strongly.

Not people to miss out on the action, two popular former central bank governors were in the headlines too this week. Mario Draghi who was the head of the ECB for eight years until 2019, was asked to take on the envious task of forming a government in his native Italy. Current Prime Minister Guiseppe Conte recently lost his majority after conflict surrounding COVID recovery funds. Mark Carney (former BoE Governor) also made headlines in his new role as United Nations envoy for climate action and finance. He warned that climate change “will be the equivalent of a coronavirus crisis every year from the middle of this century, and every year.” Fingers crossed the world listens in the same way it did when he was in charge on Threadneedle Street.

The first Friday of the month meant the US Non-Farm jobs data which bounced back from last month’s negative figure. This didn’t create too much of a stir after suggestions of a better figure from other data releases earlier in the week led to a very limited surprise factor.

Onto this week and things are slightly quieter on the economic data front. That said, we have speeches from BoE Governor Andrew Bailey and Federal Reserve Chair Jerome Powell in separate events on Wednesday evening (UK time). Clear direction on monetary policy and expectations for economic growth will be the major market movers again.

For the Eurozone, the focus will be on German data this week. The country is one of the main drivers for the single currency but has seen strict COVID restrictions in recent months. Will these releases compound the problems the Euro has faced against other majors of late? Overall the Eurozone shrank by 6.8% last year. German GDP was down 5%, France’s down 8.3% and Spain’s by 11%. This was the worst economic performance for all three countries since the second world war.

Chinese markets will be closed for a week from Thursday for Chinese New Year.

With all the movements we are experiencing of late, it really is an ideal time to get in touch with the team and discuss your upcoming exposures. We have seen a huge number of clients make contact to get our thoughts on pending exchanges, so please do reach out and we can happily work on an appropriate solution for you. The markets remain volatile, but we are here to help and are keen to do so.

Equally, if you know of anyone else who might benefit from our services (personal or business), then we would appreciate being put in touch. Happy clients are the best advert we can get for our hard work, so spread the word of Aston if you know of others we could help!

As always, please look after yourselves and stay safe.

written by

David Comber

David Comber is a Senior FX Trader at Aston Currency Management