The end of last week saw the Thanksgiving holiday in the US, which brought about a quiet end of the week in FX markets. To us, this also marks the start of the festive season, with the new (and some might say unwelcome) tradition of Black Friday and Cyber Monday, as a precursor to entering the period of advent tomorrow. The main focus on the markets though, won’t be opening the first window of our advent calendars, but the progress of Brexit talks, with time now getting very tight for a deal. There were some hopeful headlines over the weekend, but the ebb and flow of rumours coming from both sides over the coming days will be the main driver of currency markets, and the pound in particular. We appear to be making progress over fisheries, but both sides have been relatively tight-lipped as face to face talks have commenced this morning. Aside from the short-term Brexit focus, any COVID-19 related news and further vaccine updates will have an impact on global risk appetite, and we have a fairly busy week on the data docket. The Reserve bank of Australia (RBA) latest rate announcement is released overnight tonight, a host of central bankers are speaking throughout the week and a raft of US data towards the back end of the week, culminating in the latest non-farm payroll numbers being released on Friday.
Last week’s updated forecasts from the Office for Budget Responsibility (OBR) offered the most detailed estimate yet of the impact on public finances and the economy amidst the COVID-19 pandemic. An expected Gross Domestic Product (GDP) showed a decline of 11.3% and a public sector deficit of £394bln for 2020/21. Despite this deficit, Chancellor Sunak raised spending for the next year as he underlined the immediate priority to combat the pandemic and preserve jobs. Sterling did end the week lower, penalised for the continued ongoing differences in Brexit negotiations. With face-to-face talks set to resume as we enter what has been described as a crucial week, markets remain cautiously optimistic about the likelihood of a deal.
The euro closed its strongest week for a while as EUR/USD is in touching distance of the psychologically significant $1.20 level. The single currency shrugged off sub-par data and has been edging higher as news of COVID-19 vaccines and central bank stimulus raises hopes of an economic recovery next year. A busy week ahead for data statistics as inflation, employment and retail sales for Germany and Europe as a whole are due for release. ECB President Lagarde and several of her colleagues are also scheduled to speak this week.
US economic data has been a mixed bag recently, however, on balance it suggests that activity has slowed overall. US November PMI data unexpectedly rose but there was a big increase in weekly jobless claims. Thanksgiving holidays cut the week short for US participants but the dollar is in for another busy week as Fed Chair Powell and Treasury Secretary Mnuchin will testify to Congress about the effectiveness of policies designed to offset the economic impact of the virus. With the two not exactly seeing eye-to-eye recently, this could be an interesting one. Labour market data and US non-farm payrolls are the other highlights.
SEK initially had a strong week touching new highs for 2020 against the EUR but the normally mundane and calm Riksbank Governor took everyone by surprise on Thursday. As expected, the repo rate was left unchanged, but it was announced that the Riksbank was going to expand its asset purchase programme by SEK200bn to a total of SEK700bn. The market had expected an expansion of SEK100bn only. SEK weakened immediately and was hit with further comments about the possibility of a return to negative interest rates and that rates would at least be at today’s level for years to come. It is worth noting that two Riksbank voting council members did not vote in favour of this expansion. Growth estimates for 2021 were reduced too. We are now officially entering into what is historically and normally SEK’s strongest month and it will be interesting to see what kind of appreciation will be acceptable for the Riksbank. This week is very calm and the only set of data we will pay attention to is the Swedbank PMI Manufacturing survey on Tuesday. It is expected to come in at 58.0. NOK ended the month of November on a high note gaining ground against all G10 currencies and becoming the top performer. This week is very calm for NOK too with Tuesday being the only major date when the DNB PMI Manufacturing survey is released. The market is expecting a reading of 53.0, i.e. an expansion.