The big news this morning came from UK PM Teresa May yesterday when she announced that we will get the full Article 50 show on the road no later than the end of March 2017. This brought an inevitable nose dive in the value of GBP to below the value of June 24th lows. This will not be the end of Sterling’s value woes. If you have to buy foreign currencies using GBP, we believe that executing now will help to lessen the pain to come before the end of the year.
Clarity is usually a good thing and allows the market to “price in” foreseeable events but without a reasonable period of transition out of the EU, the UK will face significantly more detrimental disruption than it has so far. Like coming to a halt before a red light in the road, it should be gradual, steady and controlled, rather than the whiplash inducing slamming on of brakes. Many may have already banged their heads on the dashboard, there is no need to add injury to insult. At Aston Currency we can help you to navigate the risks you face in budgeting your exposure to currency risk for the coming year by fixing forward rates of exchange. Please get in touch with a member of the Aston team to discuss your currency requirements.
UK Chancellor of the Exchequer, Philip Hammond, has told the Conservative Party today that he is abandoning his predecessor's target of achieving a surplus at the end of the current Parliament in 2020. “Pragmatic fiscal discipline” will be the order of the day when he sets out his plans for long-term fiscal sustainability in his Nov. 23 statement on the economy. Only this morning he stated many EU countries are telling him privately that they want strong trade relations with the UK post Brexit. Couple this with the Confederation of British Industry (CBI) yesterday stating that, based on a poll of companies, manufacturing output grew, as the fall in the value of sterling after the Brexit vote helped exporters, there may be some light on the horizon. Rain Newton-Smith, the CBI's chief economist, said "Firms are confident that autumn will bring a surge in activity.”. What does this mean for you and your currency requirements? It means that British industry is doing what it can to make hay in poor weather. If you are in a position to buy GBP now is an excellent time.
You can see the movement on GBP/USD from last week to this morning on the graph below –
The strengthening US Dollar and the much embattled post Brexit Sterling point all the indicators to suggest that we are going to see Cable (GBP/USD) come off even further yet. We are already in unchartered waters and at a 30 year low. If you are holding USD (or currencies pegged to USD) please consider executing 70% of it on a SPOT basis. Current rates are excellent and taking a chunk of your risk off the table cannot be a bad decision now. We do think that the rate might improve further so please also consider implementing some market orders to try and take advantage of any moves on an intraday basis. Watch out for the Non Farm Payroll (Employment) figures due out on Friday. Please contact us to discuss appropriate levels to aim for.
Sterling/Euro is seeing further losses. The Single Currency is facing issues from Germany with Deutsche Bank and a lack of political stability in both Italy and Spain but has none the less continued its fightback and coupled with the sharp intake of breath inducing performance of Sterling, we challenged a new 2016 low, now at 1.1430. You can see the movements on GBP/EUR on the graph below –
For news within the EU the biggest issue is the survivability of Deutsche Bank (DB) with its $60 Trillion derivatives book. Why is this important for you? If we describe it in terms of a bomb underneath German Chancellor Angela Merkel and her entire economy, then you begin to get the picture. If Germany is the backbone to Europe then this is the potential for something worse than a slipped disc. Merkel would have to dig very deep to find the capacity to bail out this behemoth bank if it does indeed go belly up. Currently DB sits at the mercy of the US Department of Justice. Watch this space but can you afford not to mitigate any EUR exposure? Please contact a member of the Aston team and we can chat through how best to mitigate your risk and leave yourself some room for upside potential.
If you have any questions or concerns, please do not hesitate to get in touch with us.
Have a great week.
Written by The Aston Team