Your weekly economic update from the team at FXD Capital


Signs are emerging that interest rates for corporate and personal savers may have bottomed out earlier this year and are starting to creep up. The natural reaction to this would be to assume that the ramifications of rising yields in the institutional bond market have pushed up borrowing costs for banks, and thus, savers get their just rewards. While to some extent that may be true, the short-term effects of rising yields will mostly implicate institutional borrowers mulling over debt issuances.

The reason behind rates creeping up is down to old fashioned supply and demand. Especially in the UK, the glut of mortgage borrowing fuelled by a rampant property market has made banks all pause in unison and question whether they need to shore up balance sheets. In a competitive market, where the most reliable business to print is retail mortgages, banks increasingly find they are also competing for stable long-term retail funding. Consequently, the best buy 12-month fixed rate for personal savers has moved up 20bps since April to 0.85%.

Similar effects will be seen in the 95-day notice range in corporate deposit markets, albeit with more flux for negotiation.

Reserve Currencies

Will USD remain the world’s preeminent reserve currency? The question periodically crops up, especially during periods of USD weakness, of which we are in the throes of one right now. USD dominance exists due to its status as the currency of the world’s largest economy, one blessed with a liquid and stable financial system. While the Bretton Woods diktat of a post-WW2 world gave USD an unfair platform to assume dominance, history shows that the largest economy sets trade terms, and the US had already surpassed the UK in that regard earlier on in the 20th century.

USD is in the spotlight right now due to the heightened threat of domestic inflation, which will erode the value of debt holdings. Such an outcome would benefit corporations and the government, but not investors, hence the recent exodus from USD denominated assets.

While the US is less interventionist in foreign policy than it was back in times like the Cold War, this alone would not be a reason why trade will cease to denominate in USD. When the euro launched 22 years ago, USD constituted 71% of total central bank reserves worldwide; the figure now stands at 59%. Bear in mind that the US represents 25% of world GDP, so the imbalance of USD is still relatively significant versus the US’ economic footprint.

Calls for the end of USD dominance usually precede unrealistic predictions of shifts to Chinese renminbi, cryptocurrencies or post-apocalyptic gold-based barter systems. Such outcomes range on the plausibility scale and will manifest over generations, well past our lifetimes.

RMB has gained 10% against USD over the past year and currently sits at its highest level over three years. For the past couple of decades, China has targeted a weak RMB to stimulate its export-led growth. Yet, as China’s economy matures, it’s natural that the government will allow RMB appreciation to control inflation and pivot to domestic-led demand.

It should be seen as a good move for countries to diversify currency holdings and hedge their bets more. Indeed, this is a mantra that any corporate treasurer worth their salt would follow! Over time a slight increase in trade denominated in Euro and RMB should be expected, especially if the former issues more EU-backed debt and the latter makes its financial system more free-market.

Labour Shortages

One justification behind the predictions of runaway inflation is that specific sectors have experienced apparent labour shortages as economies open back up. The lack of applicants for roles in the service sector, especially hospitality, is resulting in wage growth and pricing pressure as employers struggle to fill positions.

Yet despite these calls, countries are still operating far from full employment. The US, in particular, is still 10 million jobs short of its pre-pandemic level. So why would there be labour shortages? Indeed, with the reliance on precipitous gig economy roles, one could argue that hidden unemployment masks even worse employment figures?

The troubles experienced in sectors like hospitality are likely to be short-lived due to a perfect storm of conditions. With sectors opening up en-masse in unison, mobilising labour is always going to be difficult. In addition, furlough schemes and pandemic assistance packages create perverse incentives. For some, the initiatives have reduced workers’ desires to go out and work. Once they start to end in the second half of the year, the dust should settle, and a more realistic picture will emerge.

Although the UK may experience more pain in this regard, Brexit’s effect on reducing foreign labour supply will result in a new state of play appearing. The UK’s post-Covid and post-Brexit “new normal” will paint an interesting picture.

All the best for the week ahead,



Our weekly column is written by Alex Graham, Economic Advisor to FXD Capital. Originally a bank treasurer, Alex’s weekly roundup intends to provide a conversational, top-down view of what is going on in world macroeconomics and how it impacts business on the ground level.

Would you like to receive FXD Capital’s Insights directly to your mail inbox? Click the button to subscribe to our email newsletters.

Subscribe to our weekly economic update


This document should be considered a marketing communication for the purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.  The information given in this document is for information purposes only and is not a solicitation, or an offer to buy or sell any security or any other investment or banking product. It does not constitute investment, legal, accounting or tax advice, or a representation that any investment or service is suitable or appropriate to your individual circumstances.

You should seek professional advice before making any investment decision. The value of investments and the income from them can fall as well as rise. An investor may not get back the amount of money invested. Past performance is not a reliable indicator of future results. Investment returns may increase or decrease as a result of currency fluctuations.

The facts and opinions expressed are those of the author of the document, as of the date of writing and are liable to change without notice. We do not make any representations as to the accuracy or completeness of the material and do not accept liability for any loss arising from the use hereof. We are under no obligation to ensure that updates to the document are brought to the attention of any recipient of this material. Please note that this commentary may not be reproduced, distributed, disseminated, broadcasted, sold, published or circulated without prior consent from FXD Capital Limited.

FXD Capital Limited is registered in England & Wales (No. 11397216) with its registered office at 3 Lloyds Avenue, London, EC3N 3DS. FXD Markets Limited is registered in England & Wales (No. 11876665). FXD Markets is an FCA registered trading name of Kyte Broking Limited. Kyte Broking Limited registered in England & Wales (No. 02781314) is authorised and regulated by the Financial Conduct Authority (“FCA”) under FRN: 174863 with its registered office at 55 Baker Street, London, W1U 8EW. Kyte Broking Limited is a member of the National Futures Association (“NFA”) under NFA ID: 0288293.