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Euro Turmoil

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You may already be aware that the Euro has fallen below parity again to record lows. We saw this only a few weeks ago, in July, when we saw parity for the first time in 20 years. Price rebounded away from this 1.0000 level showing a momentum shift within the market. Since then, the price has returned below the parity level, to the lowest level seen in December 2022.

But what has caused this, and where could we be headed next?

The price drop in the Euro can be attributed to the rise in the continued strength of the US Dollar and the current struggles across the European economy. The two-decade low of 0.09903 for EUR/USD indicates an extreme vulnerability in the European economic climate as the current gas supply intensifies an energy crisis. The soaring inflation and political conflict on a global stage are setting a precedent for the future world economy.

The Dollar Index has hit five-week highs as the market expects continued aggressive monetary firepower from the Federal Reserve. With further interest rate hikes forecasted for the Dollar, we can expect the bullish momentum to only continue. A recent Reuters poll showed that the market is anticipating a 50 basis-point hike in September to resume the changes. If confirmed, this would be a slow-down from the central bank, following a 75 basis point move in June and July. This would take the US interest rate to 2.75-3.00%, depending on the announced decision.

We spoke with Burak an Analyst from YLD FX brokerage, who commented on the expected rate hikes; “For now, central banks appear to remain hawkish, with continued interest rate hikes expected into 2023. Andrew Bailey, the Governor of the Bank of England recently stated that he ‘couldn’t rule out further increases. The British economy is following a similar trajectory as the US has, with no sign of slowing rate hikes.”

“The Euro has resumed in its downtrend below the 1.0000 level. The August PMI (purchasing managers’ index) figures showed a contraction in business activity across the Eurozone, for a second straight month. Recession fears are at all-time highs – and it shows in the strength of the Euro.”

What will be important for both retail and institutional investors, is how they will react to any potential rate hikes or market releases. The Jackson Hole symposium is taking place this week and will surely provide valuable insights for investors into how policymakers will adapt to the current turbulence across all financial markets.

Interest rate hikes and dollar strength will tend to have a bearing on the equity markets. As rates hike, earnings and stock prices tend to fall. This is especially so with growth stocks, which are hit the hardest as capital flows become more expensive and less accessible.

In a recently published report from Charles Schwab, the team of analysts stated their “current outlook highlights better opportunities in international stocks versus U.S. stocks.”

“We project higher 10-year real returns for bonds and international stocks, compared to our forecasts last year. The exception is U.S. stocks—despite robust earnings forecasts, a recent rally (in 2021) in domestic stocks has rendered them somewhat richly valued even at current levels.”

They continued with: “Three primary factors are behind the forecast for reduced returns: low-interest rates, low economic growth, and equity valuations.”

It seems that Schwab’s forecast projections align with the overall market sentiment at this time. The combination of US Dollar strength, interest rate hikes and economic contraction is having knock-on effects across financial markets all over the world. This is unlikely to change, as central banks continue to indicate further hikes to tackle excessive inflation. The Jackson Hole symposium will be a great opportunity for Jerome Powell to address the issues directly, giving the speech to summarise the events later this week. Following the last Fed meeting in July, Powell announced that ‘spending and production have softened’. This led to a drop in the US dollar and a run in equities as the market perceived a dovish shift from the central bank. The current climate has changed since then – and the stance of the Federal Reserve may be far more hawkish than where it was only a month ago.

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Union Bank of India goes live with RuPay Credit Card on UPI with Kiya.ai as a technology partner

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Nitesh Ranjan, ED Union Bank of India with Rajesh Mirjankar, Managing Director & CEO, Kiya.ai at the launch

 

Kiya.ai, one of the most innovative digital solutions providers in India, announced that Union Bank of India was among the first banks to launch NPCI’s UPI linked to Rupay Credit Card and UPI Lite on the unified payments interface (UPI) platform with Kiya.ai as their technology partner in this achievement.

The announcement comes after the RBI Governor Shri Shaktikanta Das and National Payments Corporation of India (NPCI) launched RuPay credit card on UPI, UPI Lite and Cross Border payments for BBPS at Global Fintech Fest 2022.

Until now, UPI allowed the linking of bank accounts by mapping an account linked with a mobile number and an savings / current account. Earlier in June 2022, the RBI allowed the linking of credit cards with UPI, stating that RuPay credit cards would be initially linked with UPI “to provide additional convenience to users and enhance the scope of digital payments”.

Rajesh Mirjankar, Managing Director & CEO, Kiya.ai, “We are extremely delighted to partner with Union Bank of India in this pilot project of linking RuPay Credit card on UPI. Kiya.ai has partnered with Union Bank of India for various digital payment initiatives including UPI, UPI Lite, UPI linkage to credit card, and sandbox for API banking.  The linking of credit card to UPI will significantly enhance high-volume transactions while also increasing average amount per transaction given the ease of using credit facility on UPI. This is a game-changing initiative as it will ensure safe and contactless transactions, reducing the risk of credit card frauds too.”

Mr. Nitesh Ranjan, ED Union Bank of India said, “We are pleased to embrace the decision taken by the Reserve Bank of India and NPCI to enable Rupay credit cards through UPI. Union Bank of India is proud to be a part of this launch. This is a game changer as one would be able to use a credit card for doing payments using UPI. We are excited to partner with Kiya.ai on this journey, and together, we can provide a smooth user experience to customers and make India even more digitally advanced.”

As part of the pilot project, NPCI will integrate the UPI AutoPay feature with credit card transactions to reduce the risk of defaults on credit card payments.

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UK leaves Europe trailing in its embrace of digital banking

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  • People in the UK have embraced digital and online banking in a way that those across the rest of Europe have not, new research by CRIF finds
  • UK consumers are now twice as likely to prefer to apply for financial products and services online via website or in-app, compared to people in other parts of Europe
  • More than half of Europeans still prefer to apply for new financial products in-person
  • The research comes during the cost of living crisis where people in the UK are increasingly looking for greater support from their financial providers

UK consumers are significantly ahead of their European counterparts in their embrace of digital forms of banking, new data shows.

The research, commissioned by Europe’s leading provider of consumer and business credit information – CRIF – surveyed thousands of people in countries across the continent including France, the Czech Republic, Italy, Germany, Slovakia, and the UK, to better understand their attitudes towards financial services.

The findings show that people in the UK are nearly twice as likely as other Europeans to prefer applying for financial products and services online via website or app, including through online chat or video call functions (59% vs 33%)

It also finds that over half (53%) of Europeans still prefer to apply for new financial products – such as current accounts, credit cards or loans – in-person at a local bank branch. In comparison, in the UK only around one in five (23%) would now prefer to go in-person, showing consumers’ embrace of a digital-first approach to banking.

The data underlines the advancements and innovations that the UK’s financial services and fintech sectors have made when compared to other sectors across Europe. The UK continues to be Europe’s most attractive location for international investment into financial services*, with the UK’s fintech sector securing more than $9bn of investment in the first half of 2022, ahead of Germany, Europe’s second biggest fintech destination, with $2.4bn.**

Sara Costantini, CRIF’s Regional Director for the UK & Ireland, said:

“In a digitally dominated world, the way in which we go about our daily lives has changed. And nowhere more so than in banking and financial services. Our research shows that the UK leads the way in Europe when it comes to embracing digital and online methods, but there is still more we can do to utilise digital technologies to help more UK consumers to manage their finances.

“While some are reluctant to share data as they are worried about fraud and security, we should work to allay these fears. Technologies such as open banking are not only safe but can lay the foundations for increased financial support during the current economic crisis.

“Financial providers must do more to educate their customers about the benefits of online and other digital forms of banking to not only help them during the cost of living crisis, but also to drive widespread financial wellbeing and inclusion for all.”

While the UK’s embrace of digital financial services in comparison to the rest of Europe is positive, the research identifies several key challenges to furthering this progress and providing consumers with better services at a time when the cost of living is putting considerable pressure on people’s finances.

Despite growing demand in the UK for more tailored financial products and services – with 34% saying banks should doing more here to meet people’s specific needs at this time – nearly one in five (18%) are still concerned that they would be sold products which aren’t right for them.

When the issue of data is raised, over two-thirds of UK consumers (67%) express concerns that sharing financial data leaves them more open to fraud, underlining the need to educate and reassure customers that innovations like open banking have high security standards and enables a range of consumer benefits.

However, despite this hesitance, more UK consumers are acknowledging the benefits that sharing more of their financial information with providers can bring. CRIF’s research finds around a third of people in the UK would be prepared to share more financial information if it helped providers to better assess their financial situation and improve their ability to borrow (35%) or increase their credit limit (31%). The fact that there are more than 6 million active users of open banking services in the UK reflects this change*** and makes the country the leading adopter of open banking in Europe. ****

The research also shows that younger generations (18-34s) in the UK are significantly more willing to share their data with financial providers, with 53% saying they’d be comfortable doing so if it enabled them to qualify for higher levels of borrowing.

These findings are part of wider research by CRIF into the cost of living crisis in Europe, and its impact on consumer attitudes towards banking and financial services. The full report, Banking on Banks, will be published later this month.

 

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