Thursday, 17 June, 2021

“After the Federal Reserve declared its intention to wind up the crisis-mode monetary policy earlier than previously anticipated, the dollar surged to its highest level in almost two months versus major peers. The US policy pivot signals likely pressure on riskier currencies.”

Sam Cornford, Partner & Senior FX Dealer

MAIN HEADLINES

The US Federal Reserve has announced that it expects to start raising interest rates across the US economy in 2023. The introduction of tighter monetary policy is earlier than was previously expected, as a response to soaring inflation in recent months across the US economy. Their median projection showed they see lifting their benchmark rate to 0.6% from near zero by the end of 2023. In March they had expected to hold it steady through that year. Fed officials also discussed an eventual tapering of the bond-buying program, although the timing of such a move remains uncertain.

The UK Treasury received more than £1bn in repayments from the furlough schemes offered to UK companies to keep them afloat during the pandemic. As the economy shows strong signs of recovery in the UK, investors have been pushing for repayments from the furlough scheme to be accelerated to force UK companies to prioritise repaying taxpayer funds before allocating bonuses to staff this week. Overall, this makes up a miniature percentage of the £64bn spent by the Treasury on the Covid-19 furlough scheme.

GBP

Sterling is weaker against the dollar and stronger against the euro overnight. The WHO have ramped up the pressure on the UK government to reverse the cut in the UK’s foreign aid budget, stating millions around the world will be left vulnerable to tropical diseases. A report by Indeed yesterday showed that the number of EU citizens seeking work in the UK fell by 36% since the UK’s withdrawal from the European Union. Tougher immigration rules post-Brexit account for the decline in EU workers looking to move to the UK, as business across the country in the hospitality and retail sectors struggle to fill job vacancies.

EUR

The euro is lower against most majors this morning. European central bankers are meeting in Frankfurt on Friday to debate issues ranging from changing the European Central Bank’s inflation target to making monetary policy greener, in an attempt to recalibrate eurozone policymaking for the years to come. The European Commission will propose strengthening its “sustainability criteria” to measure whether forms of biomass — which involves combustible pellets made from wood or organic waste — should be considered as renewable, according to a leaked document.

USD

The dollar is stronger against most majors in early morning trade. Biden and Putin agreed to cooperate on arms control and to return their respective Ambassadors to Moscow and Washington at yesterday’s summit in Geneva. While there was never any expectation that the summit would solve the two nations’ many problems, Putin shared Biden’s assessment that the summit alone was a victory of sorts. Treasury Secretary Janet Yellen will testify about the proposed 2022 federal budget today.

MARKETS

Bond yields jumped and stocks fell for a second day after the Federal Reserve signalled they will be dialling back the stimulus that has fuelled the recovery from the pandemic. Stocks closed off the lows of the day after Fed downplayed the risk of an immediate rate increase. The S&P 500 fell when policymakers disclosed that they expect two interest rate increases by the end of 2023. Yields on benchmark 10-year Treasury notes rose from an almost three-month low, while five- and seven-year notes fell more as the market repriced the timing of rate increases. Crude oil edged lower after earlier rising as much as 1.2%.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: EU27 May New Car Registrations

9:00 a.m.: ECB’s Villeroy speaks

9:30 a.m.: SNB rate decision

10:00 a.m.: Norway rate decision

10:00 a.m.: Italy, Spain April trade balance

10:30 a.m.: Spain sells bonds

10:50 a.m.: France sells bonds

11:00 a.m.: Euro-Area May CPI

1:00 p.m.: Turkey, Ukraine rate decisions

2:30 p.m.: U.S. Initial Jobless Claims

2:30 p.m.: ECB’s Lane speaks

4:00 p.m.: ECB’s Elderson speaks

6:00 p.m.: Russia May PPI

6:30 p.m.: ECB’s Visco speaks

Euro-Area finance ministers meet

Corporate Events

Earnings and sales include Dr. Martens, Whitbread

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