‘Brexit’ dominated headlines last week and will continue to do so. Expect 3 months of mudslinging back and forth from the ‘in’ and ‘out’ campaigners with arguments and views being about as revelatory as Scotland aren’t very good at rugby.  In this age of celebrity, reality television, the Kardashians (I had to google it to spell it), we may yet see our first celebrity culture US President in Donald Trump. Whilst unlikely, so is Leicester being top of the Premiership.    

After the stronger than expected NFP (Non-Farm Payroll) figure released on Friday with 242,000 jobs added in February and the unemployment rate remaining unchanged at 4.9%, talk has again moved from the US possibly cutting rates back to raising rates. With market attention on the ECB meeting scheduled on Thursday the single currency will be in focus. You will hear the word ‘divergence’ a lot this week with the renewed possibility of the US raising rates and the ECB expected to cut further. Indeed, ‘Super Mario’ is expected to rescue the ailing Eurozone once again this week with a rate cut further into negative territory and the launch of another ‘QE bazooka’ to stimulate markets. Negative rates are designed to increase inflation and spur growth. This has failed to materialise in the Eurozone yet, hence the expected further rate cut. From the days of Draghi saying “we’ll do whatever it takes” his job hasn’t got any easier and the Eurozone bumbles along. Will this Thursday prove to be the curing of ills? About as likely as Jeremy Clarkson becoming an environmentalist.

What will the ECB meeting do to the Euro this week? Well, the Euro is the worst performing major currency against the dollar over the past month apart from, yep, you guessed it, Sterling. Global weakness is dampening the recovery. We may now see a gradual weakening of the single currency and as I said last week the Brexit story is not just a UK one but a Eurozone one too. Sterling and Euro will likely cancel each other out medium-term with both experiencing spikes and then retracements over the coming months. Should we see Draghi deliver beyond market expectations this month I think the market will take that as a negative and we’ll see some Euro weakness.

What does this do to GBP/EUR? Well, last week we saw a rebound on GBP/EUR from lows around mid-1.26 to levels around 1.29 as can be seen on the graph below.

GBP/EUR 1 Week Graph

Could we see a push through 1.30 again? Quite possibly. I would suggest you place market orders at 1.30 the figure to purchase Euro’s from GBP. Please contact myself or one of the trading team to implement an order. If you are a seller of Euro’s back into Sterling then it doesn’t take a genius to work out that Sterling will be under pressure in the coming months as any comments on the ‘Brexit’ will be pounced on by both sides. This week, we have the BoE Governor, Mark Carney, appearing before lawmakers discussing the Brexit. He has sidestepped getting involved to date although he will have to give an opinion one way or the other. Expect increased volatility on Sterling due to this. If you have any transactions coming up please do get in a touch with a member of the Aston team.   

What of GBP/USD? Well, after dallying with the thought of breaking 2009 low’s we’ve had some respite for the battered Cable in recent trade. Indeed, we have pushed back above 1.40 the figure and into the dizzying heights of 1.42. Do I think we’re going to move much higher? Not particularly. I think we’ll see EUR/USD dragged lower towards the end of the week after the ECB meeting and with the Federal Reserve being more aggressive than other Central Banks I think we’ll see another bout of USD strength coupled with a weakening Sterling that will push GBP/USD back under 1.40 again. If you look at the graph below you can see the move higher in GBP/USD over the past week. If you are buyer of USD from GBP please contact myself or a member of the Aston team for a SPOT price to take advantage of the recent move in your favour.

GBP/USD 1 Week Graph

If you are a USD seller I would consider placing market orders to the downside at 1.41, 1.40 and then 1.39 to take advantage of any moves lower. Please contact myself or one of the trading team.

With Q1 coming to an end I expect Q2 to be extremely volatile for currency markets with politics playing a major role in the UK, Eurozone and the US. This is in addition to oil price fluctuations, ongoing tensions in the Middle East, the migration crisis, weak global growth, commodities, China, and a multitude of other reasons and sectors. As I always say, doing nothing is speculating. Please get in touch and we can put a plan in place to mitigate your currency risk over the coming months.

If you have any questions please let me know.

Have a great week.

Written by Liam Alexander