Tag Archives: PDQ-FX

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Morning Brief – Take off

Take off


April is usually a strong month for GBP. Due to the UK tax year’s end at the beginning of April, large corporations domiciled in the UK bolster demand for the UK Pound when repatriating overseas profits. This real money flow tends to provide a significant and tangible bid in GBP that sees the spot price outperform. Until yesterday at least, April had not been kind to the Pound with its major crosses continuing to leak value at a moderate yet steady pace across the board. Yesterday, however, Sterling reared up gaining almost two cents versus the US Dollar within the European trading session alone. So have FTSE100 giants finally balanced their books and started bringing their cash over?!


In truth it is highly unlikely that yesterday’s rally in GBP was the result of large corporates brining overseas profits back to the UK. One reason for the limited real money flow from overseas earners this month is the very lack of foreign profits. Whilst pharmaceutical companies may have secured sales overseas, the intra-pandemic tax year of ‘20-‘21 was typically not one of star studded international sales. Due to the political shift associated with Brexit too, capital allocation overseas in sectors from financials to industrials has risen possibly reducing the desire to repatriate profits.


So if a rose-tinted April is not on the cards this year, what then was behind the rally in GBP yesterday? Well, the first thing that kicked GBP in the right direction was positioning data that was released over the weekend. Many market participants had expected the falling GBP in the last week or so to be a result of investors losing conviction and confidence in their long-Sterling positions. Accordingly, it was widely expected that this positioning data would confirm further consolidation in the net-long GBP position within the speculative portion of the market. What was released showed quite the opposite with GBP long positions being added to in significant volume suggesting some floor to the speculative unloading of Sterling.


Secondly, UK vaccinations have continued at pace with evidence suggesting that the lack of AstraZeneca doses is not having a devastating impact of the UK’s ability to inoculate its population. This did and will continue to provide support once again to the Pound. So too the safety concerns associated with such vaccines that are gathering pace internationally have not deterred the UK population it seems from offering up their chosen arm.


Yesterday’s rally also corrected recent GBP weakness ahead of a data heavy week. Should data released this week surprise to the upside or demonstrate a more resilient recovery in the UK economy, GBP could have room to move considerably higher. Key events to watch out for include employment figures today, CPI inflation tomorrow and retail sales to end off the week. Remember, that given the period in question barely covers the opening up of the economy and will cover a period ahead of the pent-up consumer demand that has been recently released on non-essential retail, a data-driven rally could still be some periods off.




Discussion and Analysis by Charles Porter

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Morning Brief – Compromise and Consensus

Compromise and Consensus


Those of us who have worked in Germany are familiar with these concepts or konzepts embedded solidly in post WW2 business culture (geschaftskultur). This weekend the CDU/CSU parties were hoping that there would be the first leading to the second in order for them to arrive with an agreed successor to Chancellor Angela Merkel when she steps down this autumn. Despite constant communication and assurances of mutual admiration over the weekend, neither Armin Laschet nor Markus Soeder has conceded to the other thereby necessitating a leadership election. This is clearly a key moment for Germany bearing in mind that Angela Merkel has been in power as Chancellor since 2005, but it is also key for the EU and the EUR to have a worthy successor and stabilising influence identified ahead of Merkel’s departure. This rift is threatening the likelihood of the CDU/CSU coalition retaining power with the Greens making political capital out of this dissent. EUR/USD at 1.1980 over the weekend looking vulnerable to a setback.


Fast Market or Hot Market?


This time it literally is a hot market and it’s to do with hot tubs which have soared in demand during this period of non-travel. Brits have gone nuts for hot tubs and nowhere more so than in the East Midlands and sportingly (given the propensity for lots of rain) South Wales. In case you think this is to do with an adult paddling pool, it’s rather more than that. A hot tub with 4-6 seats costs GBP5,000-GBP20,000. But then it starts: above ground or sunken? Access..you may need a crane to deliver the tub to site? That alone will cost up to GBP 4,000. Then there is the electrical supply: chances are that tubbers will need to install extra equipment. Then there is landscaping, lighting, sound system and no doubt access to a refrigerator, at least, to store the prosecco. Obviously that excludes outside shower and WC. For truly authentic hot tubbers, it has to be a Riverstone which is made from volcanic basalt and retails at GBP 54,000. Come on in!


Who Let The Dogs out?


Yes it was 20 years ago that the Baha Men, the Bahamian reggae funk band released their version of this Anselm Douglas song. Formed in 1977, the Baha Men had it is fair to say taken a measured and careful approach to stardom having been largely unknown outside pubs and clubs in the Bahamas for their first 23 years. Apart from this song which has been re-released by the Baha Men most recently in 2018, their only other work has been the appropriately named 2019 number, Let’s Go….We are still waiting(!). There is more….much much more but here is a taste of WLTDO-


Who let the dogs out?

Who, who, who, who, who?

Who let the dogs out?
Who, who, who, who, who?
Who let the dogs out?
Who, who, who, who, who?
Who let the dogs out?

Well, the party was nice, the party was pumpin’
Yippie yi yo
And everybody havin’ a ball
Yippie yi yo

I tell the fellas start the name callin’
Yippie yi yo
And the girls respond to the call
I heard a woman shout out

Who let the dogs out?
Who, who, who, who, who?
Who let the dogs out?
Who, who, who, who, who?

Who let the dogs out?
Who, who, who, who, who?
Who let the dogs out?
Who, who, who, who, who?

I see de dance people had a ball
‘Coz she really want to skip town
Get back, Gruffy, back, Scruffy
Get back you flea infested mongrel

Gonna tell myself, “Hey, man, no get angry”
Yippie yi yo
To any girls callin’ them canine
Yippie yi yo




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – US Retail Sales

US Retail Sales


All those $1400 pandemic cheques for each and every US citizen may not have been fully spent but retail sales increased by 9.8% in March after a fall of 2.7% in February. Stripping out autos, gasoline, building materials and food services, retail sales still increased by 6.9% in March. While employment remained 8.4 million jobs below the level of February 2020, there were still an extra 916,000 jobs filled in March. All in all the US economy is set to perform very strongly. EUR/USD unchanged at 1.1960.


Great Green Wall


This is the tree planting programme in China aimed at stopping Mongolia’s Gobi desert sands being regularly blown into China and which are evidenced by severe sandstorms whipped up by strong winds in Northern China. So far it is work in progress with Beijing this week experiencing huge pollution, yellow skies and barely tolerable levels of dust making life terrible for its citizens. USD/CNY at 6.53.


”Without haste and without pause”


These were the words used by Raul Castro now the retiring leader of the Cuba Communist Party 10 years ago when he promised to transform the battered Cuban Soviet style financial command economy into a more mixed and market driven one. Since 1959 when his brother Fidel Castro assumed power, Cuba has had 7 planning congresses and has sadly experienced little in the way of positive benefit from any of them economically. Cuba’s economy contracted by 11% in 2020 and food and medicines are in very short supply. The hope is that the forthcoming change in political leadership will alleviate Cuba’s hardships. The Cuban Peso known as the CUP is only 3 months old and in January 2021 replaced the previous dual currency system. USD/CUP fixed at 24. Travellers to Cuba, when permitted, should take CAD, EUR or GBP in cash if, of course, they are not savvy enough to carry a SGM-FX Card.(!)


Sancerre: A Bluffer’s Guide


This French white wine from the Loire region can cost anything from EUR10 to EUR300 and is considered by wine aficionados as well as experts as “constantly improving.” Those were pretty much the exact words used by SGM-FX connoisseur Charles Porter in the Bunch of Grapes on Monday night. Grown on the flinty soil which is often called silex or silica the wine tastes steely and the silex soil also contributes to the texture of the juice. Sancerre is known for being one of the finest expressions of the Sauvignon Blanc grape and its two best producers are Domaine Vacheron and Alphonse Mellot, both of which can be found in the town of Sancerre. The Vacheron has been scored at 9/10 for the past 7 years and can be snapped up for GBP20.

Killer bluff: Sancerre is so improved due to better viticultural practices and a more Burgundian approach to terroir. Tip: Come out with that tongue twister no later than after the first sip having ensured that you are talking to someone who knows less than you do!


David Soul


It was this day in 1977 that the blonde one aka Hutch from Starsky and Hutch went to number one with a song which while not exactly memorable is unfortunately also not exactly forgettable. Don’t Give up on us Baby stayed at number one for 4 weeks and here is (not) why, since most female fans put it down to David’s blonde thatch rather than the lyrics:


Don’t give up on us, baby
Don’t make the wrong seem right
The future isn’t just one night
It’s written in the moonlight
Painted on the stars
We can’t change ours
Don’t give up on us, baby
We’re still worth one more try
I know we put a last one by
Just for a rainy evening
When maybe stars are few
Don’t give up on us, I know
We can still come through
I really lost my head last night
You’ve got a right to start believin’
There’s still a little love left, even so
Don’t give up on us, baby
Lord knows we’ve come this far
Can’t we stay the way we are?
The angel and the dreamer
Who sometimes plays a fool
Don’t give up on us, I know
We can still come through
It’s written in the…



Have a Great Weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – This statement is false?

This statement is false?

If you like a paradox you might be no stranger to unravelling self-contradictory statements like ‘this statement is false’ or ‘I am lying’, or perhaps puzzled over Achilles’ tortoise. But there’s an apparent paradox unravelling in the foreign exchange market this week. Following the release of the latest CFTC data over the weekend, it is apparent that there is still a significant long position left open within GBP markets. Of the speculative arm of the market, approximately a net 14% of open market interest is positioned to benefit from a rising Pound. This positioning has been trimmed in recent weeks with last week alone seeing long GBP positions squeezed some 3.7% alongside the falling spot price. Here’s the paradox: downside protection in GBP is now more expensive than contracts that provide equivalent upside exposure in GBP markets. So if participants are still positioned for an upside shift, why are they pricing for a downside move?


If we look behind the paradox this might be explained and give us an insight into where GBP might go. If the market is pricing downside protection as more valuable than upside exposure it represents a likely crowding of participants on one side of the market to sustain the imbalance. It is also therefore likely to reflect the market’s expected directional movement in the underlying spot price. As it stands in GBPUSD/GBPEUR markets, Sterling’s two major crosses, put options are consistently more expensive across the spectrum of traded contracts than equivalent calls, hinting towards a move lower in GBP. Options markets provide a more timely and reflective snapshot of the market than positioning data by virtue of being openly traded contracts. One potential explanation to unravel this paradox is therefore a time inconsistency: the positioning data is simply out of date.


There is some truth in this argument and the positioning data at the moment is playing catch-up with the spot price and balance of implied volatilities on each side of the options market. However, what provides a more comprehensive picture of the market is understanding that the options market is pointing in favour of a downside move to offset the open market’s long Sterling positioning. With a lack of fresh reasons to get behind the Pound, its favour has been slipping on the market. Accordingly, those with exposure on GBP are questioning their conviction in GBP given the year-to-date rally and a slow but sure long-squeeze in GBP has been underway. From this perspective, the downside skew within options markets should be read as a hedge against open market positioning.


With lagging vaccine euphoria hampering Sterling bulls, the short term Sterling outlook remains pessimistic. As England and Wales eased their respective lockdowns yesterday to allow non-essential retail and many outdoor hospitality venues to reopen, the Pound did enjoy some support. Data will be critical to the recovery with the spending by Brits in the coming days in the pub, restaurants and particularly retail to be watched closely to see how excess savings and pent-up demand translate into consumption and economic growth.




Discussion and Analysis by Charles Porter

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Morning Brief – Retirement and the 4% Rule

Retirement and the 4% Rule


Look away now unless you have a strong constitution! Conventional wisdom was that all one needed to do to ensure a stress free and funded retirement was create a pension split 60%/40% Equities to Bonds and in the first year of retirement draw a max of 4% of the fund; thereafter that 4% for annual drawings could only be increased by the inflation rate. That way the fund would last for 30 years. Unfortunately while that rule might work in the USA 95% of the time, analysis undertaken by the Barcelona Business School for an observation period of the past 120 years in 22 countries has shown that that is not the case in many other countries, such as: the UK and Switzerland only 80% but France and Germany still less at 50% and Italy only 33%. So it depends on in which equity and bond markets one is invested. With global interest rates at near zero, equity markets are having to pick up that shortfall, but the message is clear: the world needs greater economic productivity and higher savings rate ratios to pay for retirement in the 21st century.


Caribbean Islands


This is where we have reached in the post pandemic world: desperate journalists unable to tempt us with travel articles are now writing about the least expensive places to live longer term. I will not list those Caribbean destinations that offer best value other than to warn you that they include Haiti and Panama-enough said. At the other end of the cost spectrum are St Thomas in the Virgin Islands and Grand Bahama in the Bahamas. James Bond fans will remember the Grand Bahama Ocean Club in Casino Royale and for those of you itching to get sand between your toes, look no further for a dream Four Seasons managed vacation resort that is, I can confirm, reassuringly exclusive and consequently expensive. GBP at $1.37 or EUR near USD 1.19 will help dull the pain. The Martinis are naturally top notch!


Seasons in the Sun


Back at this time in 1974, Canadian Terry Jacks was at Number 1 in the UK charts with Seasons in the Sun. It was the English adaptation of the Belgian Jacques Brel song named Le Moribond meaning the dying man which he wrote in a brothel in Tangiers. Despite this unpromising provenance, the song was not described as a hit but as a global phenomenon such was its success. Others had a go at it including Westlife. Here it is:


Goodbye to you my trusted friend
We’ve known each other since we were nine or ten
Together we’ve climbed hills and trees
Learned of love and ABC’s
Skinned our hearts and skinned our knees
Goodbye my friend it’s hard to die
When all the birds are singing in the sky
Now that spring is in the air
Pretty girls are everywhere
Think of me and I’ll be there


We had joy, we had fun
We had seasons in the sun
But the hills that we climbed
Were just seasons out of time


Goodbye Papa please pray for me
I was the black sheep of the family
You tried to teach me right from wrong
Too much wine and too much song
Wonder how I got along
Goodbye Papa it’s hard to die
When all the birds are singing in the sky
Now that the spring is in the air
Little children everywhere
When you see…




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Food and Agriculture Organisation

Food and Agriculture Organisation


This United Nations Agency reported yesterday that for the 10th consecutive month world food prices have risen in March. So if you have a sense that your weekly supermarket shop is getting dearer, you may well be right. The rises are led by vegetable oil, dairy product and meat prices. Prices overall are at their highest since June 2014. Not included in the current price rise drivers is sugar-down 4% on the month but up 30% over the past year. As always, food price movements are both seasonal and subject to supply and demand variations, so if your Waitrose shop is causing you pain, it may be time to get real and get down to Tescos or maybe even Asda.


ECB-European Central Bank


Christine Lagarde seems prepared like many European politicians to become a hostage to fortune by stating that risks beyond the next few months to EU economic growth are receding following the Covid pandemic. While hard evidence provided in support of that statement is in somewhat short supply, it is of course true to say that that prognosis becomes more likely given that already over a year has elapsed since LockDownOne…unless of course Europe does not succeed in rolling out vaccines faster than the growth in the rate of infection. In which case Lagarde’s hope that the ECB will not need to spend the EUR 185 Trillion allocated for the Pandemic Emergency Purchase Programme looks less well founded. EUR however at $1.1925 well off its lows at the end of March of $1.17. That of course is more than somewhat to do with USD retracing and giving back some of its strong gains rather than EUR strength bolstered by Fed Chairman Powell’s strong talk about his inflation fighting credentials.




Hit by a drop of 86% in its tourist trade last year to a mere trickle of 2.7 million foreign visitors, Singapore is pitching a post pandemic recovery by setting out its stall to become one of if not the global centre of the cruise liner industry. Currently Singapore accounts for a third of all cruises but that is somewhat skewed by most other centres being shut and Singapore tapping into the lucrative “cruises to nowhere” industry for its 5.7 million citizens. USD/SGD at 1.34 almost its best level in the past 2 years.

Me and Bobby McGee


Readers will recall the 1969 archetypal Roger Miller song made famous by the likes of Janis Joplin and the Grateful Dead. Clearly it has also been on the mind of POTUS when he allocated the split of the monster economic stimulatory measures in the USA. What President Biden has done here has largely passed unnoticed: he is trying to wean Americans off the automobile and on to public transport. Take the following figures: in the past 65 years $10 Trillion has been spent on highways and roads versus $2.5 Trillion on subway and passenger trains and buses. In the latest package $85 Billion has been set aside for mass transit transportation to be spent in the next 8 years. A further $80 Billion has been put aside for intercity rail such as Amtrak. While $115 Billion has been allocated to the road system, this is mostly for repairs to potholed highways and crumbling bridges. Quite a turnaround. Here is the great song by Roger Miller:


Busted flat in Baton Rouge headin’ for the trains feelin’ nearly faded as my jeans
Bobby thumbed a diesel down just before it rained took us all the way to New Orleans
I took my har’poon out of my dirty red bandana
And was blowin’ sad while Bobby sang the blues
With them windshield whipers slappin’ time
And Bobby clappin’ hands we finally sang up every song that driver knew
Freedom’s just another word for nothin’ left to lose
Nothin’ ain’t worth nothin’ but it’s free
Feeling good was easy Lord when Bobby sang the blues
Feeling good was good enough for me good enough for me and Bobby McGee

From the coal mines of Kentucky to the California sun
Bobby shared the secrets of my soul
Standin’ right beside me Lord through everything I done
And every night she kept me from the cold
Then somewhere near Salinas Lord I let her slip away
Lookin’ for the home I hope she’ll find
I’d trade all my tomorrows for a single yesterday holdin’ Bobby’s body next to mine
Freedom’s just another…
La la la la la…


Have a Great Weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – It’s a Moderna world…

It’s a Moderna world…


The whirlwind surrounding the AstraZeneca-Oxford vaccine continues with new warnings from UK and EU medical regulators flooding in yesterday. Following a review into the efficacy, benefits and risks associated with the vaccine the double-dose shot is once again in the firing line. The guidance from the European Medicines Agency is that there is a link between blood clots and the Astra-jab. Accordingly, this should be listed as a rare side-effect of the jab. However, given that its public benefit hugely outweighs the individual risk of taking it, this body continues to endorse the jab in its Covid-19 vaccination guidance without reservation. The response from the UK Medicines and Healthcare Products Regulatory Agency [pauses for breath], was different: under 30s should be offered an alternative vaccine to the AstraZeneca jab.


If you hadn’t seen this news, which did have a marked impact on GBP markets yesterday, I’d forgive you for thinking that my understanding of prepositions requires improvement. Having seen the initial rollout of the vaccine in the Eurozone, notably Germany and France, be accompanied by an age cap of 65, why are regulators now instead putting a floor on advised recipients of the vaccine at age 30? The argument for this age floor is unclear. Cynics might suggest that given the risk-based and consequently age-staggered vaccination programme that the Medicines agency has pursued, putting an age floor in allows a regulatory response to avoid accusations of negligence whilst not yet harming the rate of inoculations in the UK.


This explanation too might hold weight. Those side-effects reported to the regulator in the UK included at least 19 deaths following injection with the vaccine in question. Of those, only three persons who sadly lost their lives were under 30. Given the systemic importance of the AstraZeneca jab to the UK vaccination programme and in turn the boost given to GBP by the medical covid-response, GBP has suffered following this review.


Yesterday, the UK administered its first public Moderna vaccinations in Wales. The level of vaccinations offered produced by other pharma companies fell to their lowest level so far this year as UK supplies of Pfizer and AstraZeneca equivalents continue to encounter delays. With the elevated positioning achieved by an 8% rally year to date in Sterling and with shifting market positioning ahead of the FOMC minutes release last night, yesterday was a day of profit taking and de-risking to the detriment of the Pound.




Discussion and Analysis by Charles Porter

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Morning Brief – Global Growth

Global Growth


With the IMF calling for global economic growth of 6% in 2021, markets are taking heart that this represents the largest increase in the past 50 years. That’s why they ignored the drop of 3.3% in 2020 being the largest fall since the 1950’s. The third IMF stat is perhaps the most striking from yesterday: the US economy will be stronger by 2024 than it would have been had there been no Covid. What that means is that if markets were in any doubt as to the awesome stimulatory firepower unleashed by the USA, this should nix that. Also it makes sense of the market reaction to Jay Powell assuring that there will be no inflationary problem and rates are on hold until 2024: in short they do not buy it.


NZ/Australia Bubble Covid Bridge


Is this a sign of things to come or two countries rather off the beaten track that can afford to do this? Good news for citizens of those countries but not the answer for Europe or North America let alone Asia and Latin America. Vaccination and not isolated vaccination but worldwide programme rollouts it is becoming increasingly clear will be needed for travellers to return to pre Covid freedom to roam. Both AUD and NZD pretty much unchanged v USD.


Two Laughing Boys


This 1626 painting by Frans Hals valued at EUR 15 Million was stolen as part of Dutch what shall we do in lockdown larceny last August following a heist of Vincent Van Gogh’s Spring Garden painting in March 2020. Holland’s finest have linked the two thefts and arrested a suspect in Baarn, Netherlands yesterday. No sign of the paintings however, but the Dutch sleuths are hopeful citing their success in 2011 when the Two Laughing Boys was last stolen-and recovered.


Schools Out


Never mind that, it was nearly lights out for Alice Cooper this day in 1988 when rehearsing for a show and a safety rope broke leaving him hanging by his neck. A quick thinking roadie cut him down and Alice went on with his now 50 year+ career and singing his greatest 1972 hit, Be My Lover:


She struts into the room
Well I don’t know her
But with a magnifying glance
I just sorta look her over


We have a drink or two, well maybe three
And then suddenly, she starts telling me her life story


She says


Baby, if you want to, be my lover
You better take me home
Cause it’s a long long way to paradise
And I’m still on my own.


Told her that I came from Detroit City
And I played guitar in a long haired rock and roll band
She asked me why the singer’s name was Alice
I said ‘listen baby, you really wouldn’t understand’


And I said


Baby, if you want to, be my lover
You better take me home
Cause it’s a long long way to paradise
And I’m still on my own.


On my own,




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Head above water

Head above water


GBP has struggled in recent weeks to find new momentum. Thanks to its somewhat meteoric rise so far this year, this lack of sustained upward price momentum has fuelled second guesses of a correction in the UK currency. Sterling’s range bound existence on a trade weighted basis this month has allowed Sterling bulls to unwind portions of their long bets in favour of the Pound and to take profit. The problem for navigating the immediate future of GBP lies in the fact that fundamentals lie in favour of buying the currency, but it’s lofty price, at least compared with its intra-pandemic valuation creates conflicting forecasts. Ignorant of price therefore, Sterling’s a no-brainier: a world-leading vaccination programme, inflation outpacing expectations, lower political post-Brexit risk (just about!) to name only a few. But inclusive of price, it’s a more challenging picture: does GBP still hold upside growth despite an 8% rally year to date?


Spoiler alert: yes, probably.


When the UK announced a Brexit deal on Christmas Eve, the Pound didn’t jump. This was to the surprise of many who supposed that given more than four years of blaming the 2016 referendum and the subsequent negotiating period for undermining GBP, the removal of a significant proportion of the political obstacle should allow for a smooth advance higher. In fact the only thing that shifted immediately was the year-end overnight borrowing/swap market in Sterling in a colossal risk adjustment market-wide shift. This did not, however, translate into spot, like-for-like valuations. This was partially because the deal failed to satisfy those with high hopes of a strong trade deal and the swift reminder of other political risks that had been created or still remained as a result of the process: queue Sturgeon, Farage, Juncker, Barnier & co. Rather the adjustment in GBP was a slow burner with evidence of money moving back into the UK and a reallocation of capital onto UK shores throughout 2021 to date. As the post-pandemic environment facilitates higher levels of productive capital allocation, there’s a lot of reasons to suggest GBP will be a beneficiary of this.


So if pricing, levels and technical factors are what might stand in the way of a rising GBP, how is GBP strength still the likely base case? The answer is GBP finally, after an 8% rally this year, has its head above water. The post-referendum channel bound trade weighted GBP has finally, seemingly, been broken and only now does the Pound have the technical case to support further appreciation despite its sharp rally and historically lofty valuation. With the range broken, GBP should have the floor upon which to navigate a post-pandemic, post-transition environment higher. Due to the valuations in GBP, and the combined fragility of the post-Brexit trade deal and the post-pandemic recovery period, this case will be regularly challenged and frequently volatile.




Discussion and Analysis by Charles Porter

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Morning Brief – Europe‘s third wave

Europe‘s third wave


Rising infection rates across much of Europe have been leading to souring fortune for the Euro with the world’s most liquid currency pair EURUSD providing a good snapshot of the rising Eurozone concerns over the past weeks and months. Announcements of lockdown impositions across Europe have spilled out like clockwork with core members of the Union limiting social mobility one after the other in order to attempt to limit the spread of the virus. Introducing peripheral measures and localised lockdowns until now, France and its President Emmanuel Macron have now conceded that a national lockdown totalling at least four weeks must take place to limit further hospitalisation and deaths associated with the covid-19 pandemic. Following the first lockdown, Macron’s stance on education has afforded him a degree of support as a proponent of the importance for schools to remain open. With strong evidence of viral spread in schools affirmed by the data from their testing programmes, through a combination of homeschooling and seasonal holidays, schools will now remain closed for three weeks at least in France, in a reminder of the severity of the spread in continental Europe.


The limited measures across a handful of member states over the last couple of months have seen elements of lockdown introduced across the Netherlands, Italy and Germany amongst other states. Rising infections across Europe’s open borders is fostering a more severe economic downturn from the third wave of the pandemic than had been expected moving into this seasonal shift. This undermining of expectations and a downgrading of economic forecasts provide the key to understanding the most likely path of the Euro. Globally, a third wave has been common place but it is the severity of Europe’s particular experience this time around and the souring of sentiment within the Eurozone that will limit progress in the Euro over the coming weeks.


In the UK, the vaccination programme is now sufficiently advanced in order to isolate a statistical significance to the role of the vaccination programme upon transmission and hospitalisation in the aggregate population. This follows experimental findings and empirical studies of nations including, for example, Israel who led an early immunisation push. This fact is giving further weight to the importance of a successful immunisation programme which at the moment is relatively non-existent in the Eurozone. Whilst the depreciation of the Euro associated with revised expectations to date will provide a discount in the Euro and a lower base from which to magnify a catch-up effort, the momentum remains on the side of continued underperformance rather than catch-up. The reality it seems in the Eurozone therefore is weakness in sentiment and the bloc’s currency for longer than anticipated until forecasts begin to align once again.


The continued fallout from the handling of the vaccination programme and in particular the bloc’s handing of the Astra vaccine could damage its fortune in markets. With Macron having to backtrack on his policy surrounding the importance of the schooling and education sectors remaining open, we are reminded of the potential political implications of this third wave. With elections in France only a shade over 12 months away, a populist energy is building in France. This shift is evident across the Eurozone and visible within recent electoral outcomes across Germany and the Netherlands and could mean the legacy of covid-19 continues to affect the Euro long after the market’s fixation on relative case rates expires.




Discussion and Analysis by Charles Porter

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