For the next few days ‘Brexit’ should take a back seat as we’ll have the conclusion to the most absurd US Presidential election in the history of Presidential elections. There isn’t much Presidential about either of the candidates so we’ll just have to hope for the best. Indeed, the choice is about as attractive as Jedward or the Cheeky girls playing on repeat for eternity.
Last week, Sterling staged a recovery on the back of the UK High Court ruling that Parliament must be consulted on implementing Article 50. The markets took this as a positive for Sterling as it might mean we get a ‘soft’ Brexit. Does the ruling provide more clarity or uncertainty? I would suggest this further undermines an already fragile confidence. We had an upwards move on Sterling against a number of currencies on the back of the ruling coupled with the Bank of England Governor, Mark Carney’s, comments that UK interest rates were unlikely to be cut further.
You can view the upwards move on Sterling/Dollar (Cable) last week on the graph below
Will Sterling hang around at these levels for long against the Dollar? It looks unlikely. We have already had a retracement this morning of the move from the giddy heights of over 1.25 to back below 1.24. If you are USD buyer I would look to cover off some of your exposure on a SPOT basis today. We have the small matter of the US election tomorrow with results feeding into Wednesday so we’re likely to see a number of significant moves on FX markets. What would happen if Trump won? Low yielding currencies like Swiss Franc, Japanese Yen and the Euro would likely perform well with commodity currencies weakening. Of course, the US Dollar would likely weaken. Ordinarily investors would seek solace in Sterling as being a safe haven although with the uncertainty of ‘Brexit’ I don’t see Sterling moving massively higher against the Dollar. If you need to purchase USD from GBP I would suggest covering off some on SPOT and then placing a market order around 1.25/1.26 on GBP/USD. Please contact myself or one of the trading team to discuss implementing a transaction.
If Clinton wins? I think this is the most likely outcome and I expect Clinton to win by a majority. This should translate into USD strength followed by a likely hike in interest rates in December by the Federal Reserve. If you are a seller of USD against GBP do consider placing market orders around 1.22/1.21/1.20 to take advantage of the likely strengthening US Dollar in the coming days. Of course, as we have learnt from the UK referendum anything is possible. The best plan? Have a plan. Contact a member of the Aston team today to discuss your individual requirements. As I keep saying doing nothing is speculating.
What is happening on Sterling/Euro? We’re in a range again after the spike higher on Sterling last week. You can see the movements on GBP/EUR last week on the graph below –
All eyes are focused on the US this week with the UK and Brexit a second thought with the Eurozone an afterthought. Should Trump win we’ll see EUR strengthen so this will push Sterling/Euro lower. If you have a requirement to convert EUR into GBP then I would suggest covering off some of your exposure on SPOT and place a market order around 1.11 to try and take advantage should Trump win. Please contact myself or one of the trading team to place a trade. If Clinton wins we should see Sterling/Euro push higher so if you need to purchase Euro from Sterling place a market order around 1.1250/1.13/1.1350 to try and take advantage of any spikes higher.
Of course, it could turn into a non-event with very little movement on currency pairings. I do think there will be periods of volatility in the coming days so please make sure you have a plan in place. Once we get the saga of the US election out the way we will be able to look at things on more of a medium term basis with the Autumn Statement on November 23rd from the UK's Chancellor in the UK which the markets will be focused on. We will then have an idea on what shape Fiscal Policy and direction will take for the UK.
If you have any questions and would like a sounding board please get in touch.
Have a fantastic week.
Written by Liam Alexander