– GBP / EUR volatility may increase after widespread RMB gains
– Disturbed RMB automatic stabilizers could lead to PBoC action
– May result in mitigating offers for CFETS FX inc EUR, GBP et al
– As the USD is causing headaches for central banks at all levels

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  • Reference rate GBP / EUR at publication:
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  • Bank transfers (indicative guide): 1.1330-1.1412
  • Specialist rates for money transfer (for information only): 1.1448-1.1560
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The pound-euro exchange rate could be volatile with an upward bias this week if a recent widespread hike in the renminbi exchange rates leads the People’s Bank of China (PBoC) to buy currencies other than the dollar in order to repel the pressures to appreciate the dollar.

The British pound was 0.2% higher and above 1.16 against the euro at the close last week following remarks by Gertjan Vlieghe, outgoing member of the Monetary Policy Committee at the bank of england (BoE), who said in a speech Thursday that interest rates could rise at the BoE as early as the middle of next year.

“A lot of good news is included. Yet at least the good news keeps coming. The latest nugget was the Lloyds Activity Barometer for May, which hit a three-year high, with economic optimism at its highest level since 2016, ”said Daragh Maher, Head of Foreign Exchange Strategy, United States. United to HSBC.

There is not much on the domestic economic side to influence the pound-to-euro exchange rate further over the next few days, unless BoE Governor Andrew Bailey has something of interest to consider. say in a 4:00 pm Tuesday speech titled “Building a Fit Financial System for a Clean, Resilient, and Fair Future.”

Either way, a calm domestic scene doesn’t necessarily mean that the Pound won’t sometimes be both up and down during what could be a volatile week for the currency market as a whole; Not if last week’s price action on all renminbi exchange rates is leading the PBoC to act.

GBP to EUR per day

Above: The British Pound to Euro rate displayed at daily intervals alongside the GBP / USD pair.

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For those who missed it, China saw significant gains on almost all of its exchange rates following an apparent move to allow the USD / CNH to fall in a way it already could. if the PBoC hadn’t spent so long trying to keep it on top. the historic 6.40 level.

“While there appears to be broad acceptance of a weak dollar among investors, we do not detect such a resounding consensus on China’s economic fundamentals in terms of their ability to generate RMB appreciation (other than” they are doing well “)”, says Stephen Gallo, European Head of FX Strategy at BMO Capital Markets.

The move came as Beijing worried about rising dollar-denominated commodity prices and could have been motivated by a desire to offset that increase with a stronger exchange rate, although it did cause others to rise. Chinese exchange rates which constitute a macroeconomic pitfall for the PBoC.

Quotes in RMB

Above: quotes and performance of the renminbi exchange rate over selected time periods.

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GBP / EUR forecast 2021

Period: From Q2 2021
Details: Consensual institutional forecast targets + max and min targets.
Contributors: Citi, Barclays, Morgan Stanley and more
Provider: Global reach
Type: Free download
Please access here

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GBP / USD forecast 2021

Period: From the second quarter of 2021
Details: Consensual institutional forecast targets + max and min targets.
Contributors: Citi, Barclays, Morgan Stanley and more
Provider: Global reach
Type: Free download
Please access here

After being combined with continued weakness in other key parts of the currency market, the drop in USD / CNH last week had the effect of lifting the renminbi against all currencies in the currency trading system. Chinese (CFETS) and at a time when the renminbi was already at three highs of the year in trade-weighted or aggregate terms.

“We are also seeing the CNY / JPY crossover – this has risen 15% since last summer. Japanese policymakers will be happy, Chinese policymakers less, ”says Chris Turner, Global Head of Markets and Regional Head of Research at ING.

Widespread renminbi gains are problematic for the PBoC because they make imported goods cheaper to buy and with other types of inflation being too low for the policy objectives of the PBoC, these gains could motivate the bank to buy other currencies in order to reduce its other exchange rates.

CFETS basket

Above: China Foreign Exchange Trade System currency index basket.

“We will always hold our necks and say that the appreciation of the RMB (or a prolonged period of weakness in the USD) could easily become a headache for policymakers. We anticipate that additional administrative tools will be deployed by the PBoC during the remainder of the 6.30am, ”says Gallo of BMO.

For those who missed it, China saw significant gains on almost all of its exchange rates following an apparent move to allow the USD / CNH to fall in a way it already could. if the PBoC hadn’t spent so long trying to keep it on top. the historic 6.40 level.

In Europe, the most important currency of the global CFETS index, which is the basket against which renminbi exchange rates are measured and sometimes managed, is the euro and would therefore be the main recipient in Europe of any attempt to the PBoC to push back the extremes. currency appreciation.

GBP / EUR has often performed well as EUR / USD rises wherever the single currency has risen during periods when European Central Bank (ECB) is pessimistic about its economic and inflation outlook: this is when it is most often heard pushing back the currency’s strength.

However, anything that would cause the euro to appreciate on its own would be a downside risk for the pound to euro rate.

“Wednesday will see the ECB publish a report on the international role of the euro. These typically look at the role of the euro in areas such as foreign exchange reserves, billing and debt issuance, ”says ING’s Turner.

“We would expect to see further advance of the euro in all of these categories – aided by the use of sanctions by President Trump and the US Treasury, and by the rest of the world trying to break free from dollar hegemony. The report could make bullish headlines for the euro. “

CFETS to RMB

Above: Renminbi vs CFETS index currencies.

For the background of readers; China operates a managed floating exchange rate regime.

This means that Renminbi exchange rates reflect market supply and demand, but the PBoC engaging wherever China’s macroeconomic and financial stability needs require; or otherwise for reasons related to China’s international responsibility as a major economy.

“Market supply and demand are [an] important reference. The floating and flexible exchange rate is the result of these two factors combined with necessary management, ”writes a guest commentator on the China Foreign Exchange Trade System (CFETS) website in December 2015, when the CFETS index was first launched.

It’s no secret and it doesn’t need to be controversial as the market is a no man’s land that necessarily serves the currencies, economies and countries of the world, all of which have different cultures and customs.

Nonetheless, it could matter a lot in the coming week and due to the impact that US policies are having on the dollar.

An “ America First ” monetary policy in Federal Reserve (Fed) is sponsoring a new Corbynite White House, something like a magical money tree, which has driven a tidal wave of capital away from the dollar in horror over the past year.

The dollar was already on the verge of becoming a problematic currency again even before the pound or any other currency entered 2021: and if this reality is not handled with great care, it could very easily drag the world into what many experts like yours really would inevitably call a “currency war”.

For more information, readers might do worse than take a look at the following:

The untold story of the Pound Sterling Steam Taxi Rally

British pound in Central Bank offer as People’s Bank of China considers win-win cooperation

The US dollar is on the verge of becoming a problematic currency again

Currency wars are real and the BoJ is assembling a new rifle



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