GBP/EUR continues its downward trend. I said in last week’s report that I expected 1.25 the figure to be challenged in April. Well, we’re on the 4th of the month and that level has been breached already. My view on Sterling? It’s about as likely to move significantly higher as San Marino are in the World FIFA rankings
Sterling is going to remain under pressure for the next three months. We’ll see some spikes on an intraday basis throughout this period although I expect the downtrend to continue. We have industrial and manufacturing data out this week (Friday) that will give us further insight into UK PLC. I don’t see much behind Sterling. Continued political divisions in the Conservative Party, inevitable worries emanating from a ‘Brexit’ and the fact that the UK Current Account deficit widened to a record high in the final quarter of last year suggests GBP is going to struggle. The deficit in the three months to December was £32.7bn, the equivalent of 7% of GDP in that quarter, according to the Office for National Statistics (ONS). I’ve been bearish on Sterling for a long time. These moves to the downside have happened slightly quicker than I thought and I now expect another shift lower.
On GBP/EUR I think we’ll challenge 1.20 to the downside shortly. That is likely to give way by the end of May. Sterling is looking as shaky as Mossack Fonseca’s offshore tax structures at present. If you are a Euro buyer please get in contact with either myself or a member of the trading team to discuss your upcoming requirements. There are two trains of thought at present. There is the ‘wait and see’ approach as if the UK remains in the EU then GBP/EUR should have a shift higher back to the 1.30’s. Secondly, there is the risk averse approach. Lock in Euro’s now as historically we are still trading at good levels. Even if the UK remains in the EU and we see that sharp move higher back to the 1.30-1.35 range will we hang around at that level for long? I’m not so sure. I would suggest 1.25 on GBP/EUR is around ‘fair value’ in the current climate.
Selling Euro’s? I would now consider converting a portion of your holdings back to GBP. We have had a significant move lower so there may be some range bound trading in the coming weeks before we shift another leg lower. Please contact myself or a member of the trading team to discuss your individual requirements.
GBP/USD? After the initial excitement of a move higher on Cable reality has come back and we’re now going to target the 1.40 level again. Do I think we’ll break through the previous lows around 1.38? Simply, yes. If we sustain a break below 1.40 the figure for a few days this month then I think the door is opened. We have FOMC minutes out this week on Wednesday that will give us some more details on the dollar. The NFP figure (Non-Farm Payroll) came in better than expectations on Friday at 215K against a consensus of 205K. We are now dallying with the lower 1.42s again. If you have a requirement to purchase USD from GBP then it is a similar story to that of the Euro. Can you afford for Sterling to get weaker against the Dollar and trade in the 1.38s/1.39s? If we remain in the EU, and it’s a big ‘if’, then yes, GBP/USD will push back to levels around 1.50 the figure. Of course, then again, we may not remain in the EU and we could see under 1.30 on GBP/USD.
With Foreign Exchange your main goal should be taking the ‘if’ away. Doing nothing is speculating. With Q2 now underway it is going to be an extremely volatile quarter for Sterling with I would imagine, significant risks to the downside. Please contact a member of Aston and we can discuss an appropriate strategy to put in place for you. We’ll look to take away your risk whilst allowing yourself room to benefit from any upside moves.
This week is fairly light in terms of data. Things heat up a little on Wednesday when we have the aforementioned release of FOMC minutes. We also have the ECB meeting on Thursday followed by the ECB president, Mario Draghi speaking. UK data rounds off the week with the release of industrial and manufacturing data.
If you have any questions please do let me know.
Have a fantastic week.
Written by Liam Alexander