Third lockdown for the UK

The dollar has this new year as it had ended it, i.e. Weak against the euro, the franc, the yen and the yuan among others. Chicago Fed Chairman Charles Evans has said monetary policy will remain accommodative in the United States for the long term. It will take several years to bring inflation back to an average level of 2%, which means that interest rates will remain low for a while. The $900 billion stimulus package, voted by Congress just before Christmas, bodes well for supporting household consumption. In fact, weekly unemployment benefits will be increased by $300, for three months, and a check for $600 will be paid to every American whose annual income is less than $75,000. Economically, the US manufacturing sector experienced its strongest growth in more than six years in December. The manufacturing PMI index rose to 57.1 from 56.7 in November. Manufacturing activity has grown steadily over the past six months. However, this good news was not enough to reverse the greenback’s downtrend.

With a new generalised lockdown announced by British Prime Minister Boris Johnson to tackle the spread of the new strain of the coronavirus in the UK, investor enthusiasm for the pound has cooled and safe havens are back in the foreground. While uncertainties hover over both the growth and the deployment of vaccinations, the Swiss franc is again sought after and returned below 1.0800 against the euro in these first days of the year. The ounce of gold has risen well above $1,900, taking silver up with it. The weakness of the dollar, very low interest rates and a general feeling of aversion to risky positions are favourable to precious metals. The yuan is trading below the 6.50 mark against the dollar for the first time since mid-June 2018. The Chinese currency traded at 6.4370 this morning after hitting 7.1965 in May of last year. This is a reflection of the strong economic recovery in China where the impact of the pandemic has been absorbed more quickly than in the rest of the world. The Caixin manufacturing index came out at 53.0 in December, down from the previous month but still expanding. It was the same scenario this morning for that of services at 56.3 in December against 57.8 in November, still well above the mark of 50 which separates an expanding economy from a contracting one. While growth could slow down in the coming months, it will remain strong, supported by the effects of stimulus packages and a gradual recovery in the global economy.

The Swiss National Bank, which now publishes its figures relating to interventions on the foreign exchange market, reports having spent 11 billion francs in the third quarter. This brings the total of interventions to more than 100 billion francs for 2020. The institution had declared that it wanted to maintain its presence in the markets to prevent any attempts to strengthen the franc, which it still considers highly valued, despite the fact that the United States had placed Switzerland on its list of currency manipulators. These interventions, the most significant since 2012, have made it possible to maintain the single currency above 1.0500 at the height of the crisis, a level unseen since the abandonment of the floor price in 2015 and the return to 1.2000 in April 2018. The prospect of an economic upturn this year should take some of the pressure off the SNB, but it will certainly take time and our currency remains at the mercy of the markets in case of deterioration.

Global stock markets broke records in 2020. There has been an unexpected performance after a year marked by the vertiginous drop in stock market indices in mid-February and the beginning of March, followed by such a spectacular recovery from the last days of this first quarter as well as an end-of-year rally since November. The continued economic recovery, particularly in the United States and China, as well as still very low rates expected for 2021 are promising for stock markets. But these, like the franc, remain at the mercy of the evolution of the pandemic.

With the new year, central bank monetary policy meetings will return to the forefront. But we will have to wait until the second part of the month for that: the Bank of Canada on the 20th, and the European Central Bank, the Bank of Japan and the Bank of Norway on the 21st As for the Fed, it will meet on the 27th.