What a glorious weekend of weather. In time honoured British fashion this led to many people mistakenly thinking they had bodies like the cast of Baywatch. The ‘many’ unfortunately do not. Still, Calypso ice lolly sales rocketed giving a timely boost to the UK economy so we’re all good and can relax.
After Sterling’s dizzying short lived comeback it has fallen harder than Amir Khan to the canvas. I expect Sterling to drift slowly lower in the coming weeks. There will be intraday spikes on the back of comments and data releases although unless we see a sustained break above 1.45 I think a bearish tone will continue. We have ongoing Brexit concerns although the downtrend in Sterling can’t solely be attributed to this. We had poor PMI data (manufacturing indicator) out last week and this week the main event for the UK will be ‘Super Thursday’. Sadly, I don’t expect anything super about it. There won’t be any changes to policy. Market participants will be paying close attention to what Mark Carney, BoE Governor, has to say after the release of data although I think we’ll see a muted reaction with a move lower for GBP if anything.
Everyone kept saying we’re going to see a weak dollar this year although it hasn’t fully materialised. The US Dollar had its best week this year against a host of currencies last week despite a mixed set of data. The NFP (Non-Farm Payroll) figure came in under expectations at 160K against 208K. We did however have a healthy ISM services number. The disappointing labor market figure pours further cold water on the chances of the Federal Reserve raising rates this year. Volatility in the currency markets is averaging the most in 5 years so we’re seeing a number of sharp moves in a whole host of currencies from G10 to EM currencies. With the chances of Donald Trump becoming the President of the US looking stronger I expect volatility to remain high over the coming months. We have a fairly quiet week in terms of data so the main release to focus on for the US is Retail Sales. We’re expecting a modest rise in sales in April.
If you look at the graph below on Cable you can see the sharp move lower in GBP/USD last week.
Sterling/Euro is proving rather interesting at the moment. We’re seeing swings in both directions as can be viewed on the graph below.
As usual, there are two camps on GBP/EUR on a short-term view. I don’t think there is much point at present focusing post EU referendum as we’re into the unknown. There are those that think Greece is close to imploding again with the ongoing discussions around ‘contingency loans’ which in short means a float of cash held by the IMF in case Greece veers off coast with their debt repayments. Evidently, the Greeks don’t want to pay this, although with the IMF still involved they may have no choice. I’m not sure anyone can face Greece holding any further snap elections or referendums. Does this mean the Euro may weaken? Perhaps, although I don’t think Greece is a main story anymore. We will see on that one. We also have the ongoing EU problems, deflationary pressures etc etc although I think the Eurozone as a whole may slowly be coming out the woods. The expected divergence between the EU, UK and US hasn’t materialised at the speed expected and if anything the Eurozone is starting to close the gap.
I’m of the opinion that GBP/EUR will again break through 1.25 the figure on the back of improving EU data, worsening UK data, take UK consumer confidence being at weak levels once again, GDP growth falling from 0.6% to 0.4% etc etc. Throw into the mix the small matter of the EU referendum and I believe that GBP/EUR is going to be on the back foot over the next 5/6 weeks. After that, we’ll take a view once the EU referendum issue has been settled one way or the other.
If you have a requirement to purchase Euro’s from Sterling I would suggest covering off some of your exposure at current levels. Please contact myself or a member of the trading team for a rate of exchange. If you have a requirement to sell EUR into GBP I would suggest doing 50% of it on SPOT with the remaining 50% placed on market orders to take advantage of any moves in your favour. Please do feel free to send me an email to discuss.
One of the main movers last week was GBP/AUD. You can see the sharp move higher on the graph below. If you have a requirement to purchase Aussie Dollars from GBP now is a good time to consider taking advantage of the move in your favour. In addition, you may want to place a market order with a view to securing around 198. The Central Bank (RBA) cut rates down to 1.75% and cut its inflation forecast to 1.2%. This caused the Aussie dollar to tumble.
If you have any questions please do let me know.
Have a fantastic week.
Written by Liam Alexander