NatWest Markets Strategy & Sales

Weekly FX Corporate Spotlight | Summer
NWM Currency StrategyBrian DaingerfieldPaul RobsonYuan Cheng
02 August 2021 15:00


Authors
Brian Daingerfield
Head of G10 FX Strategy, US
Stamford
+1 203 897 6806
Paul Robson
Head of G10 FX Strategy, EMEA
London
+44 20 7085 6125
Yuan Cheng
FX Strategist
London
+44 207 085 8942

Contributors
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Recent Developments

The USD edged lower in post-FOMC trading. We think the Fed continued to advance the conversation on tapering but showed no urgency to speed up its taper timeline. The Fed’s data dependence puts significant focus on Friday’s jobs number. UK Covid-19 trends are encouraging, and reopening paired with risk of a hawkish skew to the BoE decision this week favours sterling outperformance. The growth outlook in Europe is improving, but a resolutely dovish ECB remains a challenge for the EUR.

Top Views

Delta variant risks continue to shift expectations for global growth. Differences in government and monetary policy responses, as well as the differences in vaccination rates, have opened up divergence in expectations across regions.

We continue to look for a period of Sterling out-performance, as the reopening continues and most recent Covid-19 data look encouraging. While the Bank of England looks set to leave monetary policy settings unchanged this week, risks are skewed in favour of a measured hawkish shift in rhetoric.

The Fed noted in their July meeting that discussions of taper are ongoing, but gave little evidence that the Fed is speeding up its timeline on taper. The USD weakened in response to a largely unchanged message, but the Fed’s upcoming decisions will depend crucially on upcoming economic data.

As is often the case, US NFP on Friday is a significant market release – an upside surprise could lend strength to the USD, and August tends to be a strong seasonal month for the USD. NWM Economics expect a +700k gain in July employment, below the current listed consensus (875k) but caution that a there is a high degree of uncertainty.

Many Euro-area nations have passed the US in vaccination rates, and case count trends in the UK may bode well for Europe. While this is a clear positive, the EUR may be held back by a dovish ECB outlook. The case for EUR outperformance has weakened in the face of slowing Asia growth and a dovish ECB.

Last week, our corporate flows showed a noticeable pick up of Sterling, but that trend reversed in the latest week. Indeed, our net executed volume in sterling showed better selling. In EUR and USD, meanwhile, we saw better net buying in the week ended August 1st.

See full details in the attached pdf.  

  

  

  

  


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