Will we leave, won’t we leave, will things go up or down, is Britain going to be better or worse off? Until we get closer to the vote then all the arguments are as ridiculous and pointless as a Kale smoothie and the people on Instagram.
Here is one certainty. Sterling will go up and down prior to June. Insightful stuff I hear you say. As you can see from the GBP/USD graph below this occurred last week. The release of CPI data (inflation) out of the UK came in better than market expectations at 0.5%. Indeed, this was the highest level since December 2014. It mainly rose due to Easter holidays falling earlier this year and subsequent airfares transporting the British masses to sunnier climes to drink their bodyweight in local beverages. We’re still miles off the 2% target rate although it is an improvement. GBP jumped on the back of it. Sterling later retreated and gave up most of the gains it had made.
GBP will look for inspiration and direction from the Bank of England Governor Mark Carney, labour market releases and Retail Sales figures published this week. I expect GBP to continue to threaten great things only for economic reality and circumstances to push Sterling to the floor quicker than someone can say on social media “look at me”. Therefore, if you are a US Dollar seller please do consider placing market orders to execute on an automatic basis. I think we’re going to have another push lower after a slight bounce. Please contact myself or one of the Aston team to implement an order.
US Dollar buyer? Pretty much as I said last week. You’re above 1.40 to purchase US Dollars and whilst that might not make you do cartwheels (never really understood why cartwheels are associated with happiness but a thought for another day) it may well indeed be best to secure some of your exposure at current levels. I think we’ll be under 1.40 again short term and should the UK leave the EU then expect GBP/USD trading anywhere from 1.30-1.35. Look at covering 50% of your exposure prior to June.
GBP/EUR is bouncing around the mid 125s with no clear direction. I think upside is now limited and I don’t see much to suggest another leg higher. The one event this week that may give EUR a direction against Sterling is the ECB meeting. Things will be unchanged although the markets will be paying attention to the comments from Draghi surrounding rates. Should Mario Draghi suggest that he is leaving the door ajar for further rate cuts then the EUR will come under pressure. Should he suggest that rates are at ground zero the we’ll see the EUR increase against Sterling. If you are a Euro buyer I would look to take advantage of the gains Sterling made against the Euro last week. If you look at the graph below you can see the gains that were made.
Please consider covering off some on a SPOT basis and contact a member of the Aston team for a rate of exchange. Sell Euro’s back to GBP? Consider placing market orders to the downside to take advantage on any moves lower. I think we’re now at the top of this range so you should consider trying to take advantage of the next move lower.
If you have any questions on the above please do let me know.
Have a fantastic week.
Written by Liam Alexander