Last Monday morning we had a Conservative leadership race. Then there wasn’t one. We now have a new Prime Minister and a Chancellor. Expectations were for the Bank of England to cut rates last week. They didn’t. Sterling went up. Then it came back down. Now it’s going sideways. The only certainty is that Pokémon Go is a complete and utter waste of time.
Do we have more certainty now that we have a Prime Minister? Yes. Does it remain to be seen what direction Theresa May and her newly appointed Cabinet steer the ship? Absolutely. We had a bounce in Sterling on her appointment and the Bank of England voted 8-1 to keep rates on hold on ‘Super Thursday’. Anyone else hate that term and think of Sky Sports? Nope. Just me then. Sterling gained some much needed impetus from keeping rates on hold. Does the respite continue for the Pound or are we due another shift lower? I think the recent move higher in Sterling will be short lived and we’ll see the downtrend resume. We’re going to see the fallout from ‘Brexit’ continue over the coming months and with uncertainty set to remain on everything from financial to political questions this is going to weigh on Sterling. We will see bouts of Sterling strength on the back of various ‘good news’ stories that will give us some intraday spikes although I expect these to be limited.
You can see from the graph below the swings in Cable (GBP/USD) since June 24th to this morning.
Are you a US Dollar buyer? Whilst over 1.30 again I would consider locking in some of your exposure. I do think GBP/USD is going to come off further. Psychologically committing at such historic lows is hard to do although in a few months’ time it may turn out to be prudent. Do consider some on a SPOT basis and then leave yourself some room to manoeuvre by utilising market orders. Please contact myself or one of the trading team to discuss current rates.
GBP/EUR? If you can achieve 1.20 to purchase Euro’s from GBP in the upcoming weeks I would consider this a good level, in present market conditions. Yes, we’re a long way from highs of 1.42 or thereabouts. 1.20 not so long ago would have been considered a good level. The days of 1.40 etc are gone.
If you look at the GBP/EUR graph below you can see the movements from June 23rd to this morning.
We’re in a new FX landscape and we may see Sterling under pressure for a while. Please do consider placing market orders at 1.20 the figure to execute at. Having said that, is the single currency going to strengthen this year? Probably not. Could GBP/EUR extend to the upside? Quite possibly. We have the ECB Monetary Policy Statement and Press Conference out this week and we’ll see what Mr Draghi has to say. If you are a EUR seller into GBP please lock in some on a SPOT basis. We’re at extremely good levels compared with June 23rd and a pre Brexit world. With so much uncertainty the best thing to do is take risk off the table. We’re starting to see a somewhat more settled environment compared with the last few weeks and we’ll soon settle into a ‘new normal’ although as it’s uncharted territory substantial currency movements and volatility can’t be ruled out.
Please do contact us here at Aston should you have some upcoming requirements you would like to discuss.
Have a fantastic week.
Any questions please do let me know.
Written by Liam Alexander