Janet Yellen nominated as Treasury secretary

The euro is once again trying to break out of the 1.1600–1.2000 range it has remained in since the beginning of the summer. The upcoming arrival of COVID-19 vaccines has rekindled appetite for risk, with many investors moving away from the dollar. The market seems to be operating independently from the health situation, which continues to worsen in many countries. Despite the hopes of an upcoming vaccine, a complete end of the lockdowns if still a long way off. Bars and restaurants, in particular, are expected to remain closed until January in major European countries as Germany, Italy and France put pressure on Austria and Switzerland to keep ski resorts closed for the end of year celebrations. The upsurge in COVID-19 cases and the measures taken in different countries to counter the second wave of the pandemic strongly impacted the euro area economy in November. Despite this, the euro, riding on a wave of optimism, rose above 1.2000 to reach heights last seen in April 2018. But, with just one week to go before the next meeting of the European Central Bank, it remains to be seen if the single currency manages to continue its climb. Lest we forget that, the last time the euro rose above 1.2000, at the beginning of September, the declarations first of Philip Lane and then of Christine Lagarde promptly brought it back to 1.1600. Both said that the level of the euro had an impact on the economy and especially on inflation, so the ECB was keeping a close eye on it. As it waits for the ECB’s monetary policy meeting on 10 December, the market should adopt a cautious position, especially since just a few weeks ago the possibility of a further 0.10% cut to the key rate was still on the table.

In the United States, Joe Biden confirmed the appointment of Janet Yellen as head of the US Treasury. Ms Yellen has been a woman of many firsts: As chair of President Clinton’s Council of Economic Advisers, she led the Federal Reserve of San Francisco, and was vice-chair and then chair of the United States Federal Reserve from 2014 to 2018. The US central bank has also announced that it is extending until 31 March 2021 its business loan programme for US companies hard hit by the current crisis. This measure was taken in agreement with the government and its Treasury Secretary Steven Mnuchin.

Gold broke below its support of $1,800 an ounce which corresponded to the 200-day moving average to hit a low of $1,764.80. The decline in gold can be explained by the recent rise in long-term interest rates at the same time inflation expectations remain contained. The general sentiment in the markets is better with the prospect of a COVID-19 vaccine and the election of Joe Biden to the White House. Vaccines are in the process of being approved, and Pfizer announced yesterday that its vaccine could be available before the end of the year in the EU if the latter gives its approval. The Swiss franc is the other safe haven that is benefiting of the current environment to release the pressure. It is giving up some ground and has tested the CHF 1.0870 bar against the single currency. Last week was the second in a row that demand deposits have fallen and the fourth in which the SNB has apparently been absent from the market. The Federal Council renewed the management board of the SNB for the 2021–2027 period. Thomas Jordan will continue to lead the Swiss institution with Ms Andréa Maechler and Mr Fritz Zurbrügg at his side.

The Central Bank of Sweden left its key rate unchanged at 0% last week as expected. It did, however, increase its asset buyback programme in the face of the new economic difficulties linked to the second wave of contagion. “The surge in new cases and stricter restrictions will lead to a further decline in the Swedish economy”, notes the bank, which has revised its forecasts. It now forecasts a drop in GDP of 4%, against a 3.6% drop previously, and growth of 2.6% for next year. To support the economy and move towards its inflation target, it has therefore increased its programme by 200 billion kronor or €19.6 billion. It now amounts at 700 billion kronor until the end of 2021. Inflation in Sweden is expected to be 0.4% this year and 0.8% next year, a far cry from the 2% target.

At its last meeting of the year, the Central Bank of Australia held its rates steady as expected. Given the economic and employment situation, the Board of Governors does not plan to hike its main key rate before inflation settles permanently in the 2 to 3% range. The Board, therefore, does not intend to raise it for three years, said the RBA.