Ladies and Gentlemen, clients, friends, FX aficionados and casual observers alike, welcome to our final report for 2016.
I am sure that you will agree, we have seen severe volatility and we have seen periods of highly unpredictable currency market movements, so violent many heads have yet to stop spinning. Of course, that could also be the results of a company Christmas party but let’s not dwell on it. Sadly, we find ourselves still looking for peace on earth and good will to all men but we still have hope. Like the soldiers on both sides of the Western Front in 1914, we do not yet know what difficulties may lay ahead of us in the years to come and anyone that suggests that they do is, at best, being economical with the truth. None the less, we are keen to spread comfort and joy and we will be working throughout the festive season to make sure that you continue to be efficient and effective in all of your cross-currency needs.
Cable - USD/GBP
In the US the big news last week was the Fed announcing an increase in interest rates of 25bp to 0.75%, even if it had been widely anticipated. Richmond Fed President, Jeffrey Lacker said on Friday that the US may yet need three rate hikes in 2017. The Fed’s $4.5 trillion balance sheet is something of a worry and led to suggestions that Fed rate rise could have been worse for bond value than Trump’s win. The prospect of faster / multiple US interest rate rises next year has wiped $800bn (£641bn) off global bond markets as the sell-off accelerates on bets of higher growth and inflation. The value of USD hit a 13-year high against the EUR last week, while US equities saw $20.5bn of weekly inflows, the ninth biggest in history, per EPFR Global, which tracks fund flows data.
Recent GBP/USD movements can be seen here:
Wednesday’s events saw GBP/USD close over 1% lower, testing the downside support. Over the reminder of the week, as markets digested the Fed outcome, the pair continued to push lower, breaking through the support. We will be keeping a close eye here as this could signal a reversal in the trend and the Cable value currently sits at 1.2365. You can take advantage of changes in the strength of USD through the utilisation of an OCO or “one cancels the other” order; as it can be seen as ideal to place a Take Profit (Market) order and try to achieve a rate better than the current market position, although there is always a chance that it may not be achieved and the exchange rate could move against you. The OCO trade allows you to set a best and worst case scenario and the rate is secured whichever level is achieved first. Please do not hesitate to contact a member of our team to discuss the benefits of a planned strategy to see you through the end of the year and into 2017.
At home, the last week has seen the effects of an awkwardly lonely Prime Minister in Brussels, hoping not to have to pay the £50 billion divorce settlement that is being suggested by the anti-British hardliners in the European Commission to “blow up” the forthcoming Brexit negotiations before they get going. Dr. Liam Fox, the UK’s International Trade Secretary has intimated a Turkey-style trade pact could be our best way forward, which is rational if not realistic to what the rest of the EU would allow. Fox may have taken his theory from our recent Brexit Hokey Cokey newsletter, wanting to have his right arm in and his left leg out but the CBI reports half of British employers believe the country's attractiveness as a place to invest and hire will diminish over the next five years as it leaves the EU.
If the CBI’s report is to be believed and with UK inflation having ticked up in November to 1.2% year on year, with the previous month at 0.9%, rising clothing and fuel prices have been the main contributors to last month’s increase. UK Chancellor Philip Hammond and the inflation figure seemed to trigger a small increase in GBP relative value, which hit fresh highs on Tuesday with GBP pushing up to $1.2728 against the US Dollar and €1.1988 against the Euro. None of this was ultimately helpful for GBP’s value against EUR today as it has returned to a low 1.19 now.
Last week’s movements of Sterling/Euro can be seen on the graph below:
We cannot stress enough that not addressing your currency requirements is as big a risk as trading so please do contact one of our team to discuss how we can help mitigate downside risk exposure using fixed or variable forward contracts.
Finally it just remains for me to remind you that our very own “little helpers” will be on hand throughout the festive period to assist you, with the exception of December 26th and 27th and January 2nd (UK bank holidays), should you need to trade.
On behalf of us all at Aston Currency Management, to wish you a very Merry Christmas and a Happy and Prosperous New Year for 2017. Its time for a mince pie I think….