Like Issac Asimov’s 1942 trilogy of Foundation Novels could the galactic empires of the US, UK and Eurozone soon be crumbling into disrepair and entering a dark age before we see the emergence of a new set of Empires on the periphery? Should Trump win the US election, the UK and Eurozone fail to act like grown-ups on Brexit and trade deals, then we may as well all move to the Milky Way for the next Millennia.
Sterling is continuing the downtrend with a few moves to the upside on an intraday basis. Rolling into November we have a number of key events with the main one being the US election. We will focus on this in a little more detail next week. What would a Clinton win mean for the US Dollar? You would think it should give the US dollar a boost as it keeps the Nuclear launch codes from Trump and in safe keeping at 3am in the morning. However, a Clinton win could be viewed as it should be – it is a new president, what direction will she go down, what are her policies and will the investigations rumble on? In short, there will still be political uncertainty for the US no matter what happens so that may mean USD weakness. If you have a USD exposure please do get in touch throughout this week to discuss implementing a plan. Might it be a similar rollercoaster to June 23rd? Quite possibly. We saw how markets reacted that evening and following morning. Please do get in touch with myself or a member of the team to discuss covering off some of your USD exposure.
You can see the movements on Cable (GBP/USD) from last week below –
Last week we had a slight drop in consumer confidence from the US although the GDP figure came out better than expected at 2.9% against expectations of 2.5%. We have the Federal Reserve meeting this week so we’ll be looking to see what the Fed Chairperson Janet Yellen delivers. I don’t expect rates to be moved although it will be interesting to see how many dissenters there are to keeping rates on hold. The Federal Reserve will likely tee things up for a December hike then we’re back onto the conversation on divergence policy between the US and UK/Eurozone. Also this week from the US we have the NFP (Non-Farm Payroll) figure released. Will it come in better than expected? I expect the US to continue to publish positive figures so we’re likely to see a figure over the forecast of 175K jobs posted. This should give the US dollar a shove into the positive territory.
From a UK perspective uncertainty abounds. Will Mark Carney, the Bank of England Governor, get fed up with political meddling and questioning of his actions and head back to Canada? I certainly hope not. The UK really doesn’t need to be looking for a new Central Banker at present. Carney should let journalists and the watching world know at the press conference of his intentions to stay on. Should he state he is remaining I would expect a rally on Sterling on the back of it and this may set the tone for a rebound on Sterling short-term. The UK did post better than expected Q3 GDP figures at 0.5% against a forecast of 0.3% last week. It seems the UK isn’t quite heading to oblivion at present.
On Sterling/Euro it is settling into range bound trading. I do think this pair is undervalued at present with continuing problems in the Eurozone. The fact they took 7 years to do a deal with possibly the nicest nation on earth doesn’t show they are particularly great at moving with any speed. I do expect a slight rebound on GBP/EUR between now and year end. If you have a EUR exposure please do contact myself or one of the team to discuss your current requirements.
If you are selling EUR back to Sterling I would suggest it may be worthwhile covering off a sizeable portion on a SPOT basis. Please contact me for a rate of exchange. You are in a significantly better position than a few months ago and as I keep saying doing nothing is speculating.
You can view the graph below to see the movements on Sterling/Euro last week –
If you have any questions or would like to schedule a call please do get in touch.
If you are looking to go back into EUR from Sterling I would implement market orders to take advantage of any moves to the upside on an intraday basis. We can discuss appropriate levels to aim for. Uncertainty is going to continue for the foreseeable future with no clarity on how the UK is going to exit the EU. Planning is going to be even more vital than it has been in recent years as currency movements are now far more exaggerated on political commentary and bias than I can ever remember. Of course, economic fundamentals will remain to play a key role although politics is set to remain front and centre over the coming months.
Have a fantastic week.
Written by Liam Alexander