Last week was a relatively quiet week for the UK. Everything is rather stable and beige at present. FTSE 250 is still down, potential (pretty much bang on guaranteed) rate cuts to come from the UK, further QE expected, a Conservative leadership contest underway, Jeremy Corbyn being Jeremy Corbyn, Sterling falling quicker than Boris Johnson’s shot at being Prime Minister, Article 50, will it or won’t it be implemented. Oh well. At least Murray has a good chance of winning Wimbledon this year. We can all drown our sorrows in Pimms and try and stimulate the UK economy through alcohol purchases. As good a plan as any at present.
Where to start? I’ll keep things succinct as otherwise by the time I’ve covered every subject it will be 2020 and the England football team will have just touched down after a second round exit to Gibraltar. The fall in Sterling has been sharp although it now looks like we’re settling down against the US Dollar and the Euro. Could GBP fall further? Quite possibly. In these uncertain times it is best to be as risk averse as possible and take that risk off the table. If you have currency requirements please do consider executing a percentage on a SPOT basis. Send me an email or call me at the office and we can walk through your individual requirements. Might things move in your favour over the coming months? Absolutely. Might things move a further 3-5% against you? Absolutely. With a new economic and political landscape in the UK everything is guesswork.
What we do know for certain is that GBP/USD is at levels not seen since the 1980’s. If you are a USD seller my suggestion would be to cover off a significant portion if not all your USD requirement into GBP at current levels. Doing nothing is speculating as I’m sure you’re bored of hearing me say. If you would like a rate to sell USD into GBP please get in touch.
If you look at the GBP/USD graph below you can see the volatility last week.
If you need to purchase USD from GBP my suggestion is to do a small portion of your requirement to take away some risk. Rates are shocking, let’s not pretend otherwise. It may be a case of waiting things out and implementing market orders to the upside to take advantage of any spikes on an intraday purchase. Please get in touch and we can discuss appropriate levels to aim for. Currencies will be volatile for the rest of the year and Sterling will move sharply on any commentary from Central Bankers and officials. We are likely to see two rate cuts from the Bank of England to the tune of 50 bps and I think we’ll see QE initiated in August from the Bank of England Governor, Mark Carney. We have the Financial Stability report from the UK out tomorrow at 09.30. A wild stab in the dark here although I’d expect a dovish report. We may see a further fall in Sterling tomorrow. We have Non-Farm Payrolls out of the US on Friday so at least the markets attention will avert its eyes from the UK for a short time. If we have a strong figure then there is the potential for GBP/USD to move under 1.30. There will be a lot of resistance at that level. If we break that then 1.25 on Cable (GBP/USD) comes into play.
GBP/EUR broke the psychological support level of 1.20 last week and it’s struggling to regain that level. Evidently ‘Brexit’ is a bad news story for the UK although it is for the Eurozone too. Short-term I expect a further drop in GBP/EUR although by the end of year I would expect some Euro weakness to come into play so I think we’ll see GBP/EUR push back up to around 1.25 or so. We will need to keep an eye on things over the coming months and once some dust has settled in this whole debacle we’ll be better placed to evaluate things.
If you look at the GBP/EUR graph below you can see some of the movements last week.
Do you have a requirement to purchase Euro’s? Yes, it has come off post ‘Brexit’ although many of you will remember the times when we were trading around 1.09-1.15. Should you hold off and wait for GBP to climb against the Euro? I would cover some off now and then stagger market orders so you can take advantage if Sterling does stage a comeback. I would caution however that Sterling may have another fall so please do consider some Euro’s on a SPOT basis.
Do you need to sell EUR into GBP? I would lock in some of your Sterling on a SPOT basis and then place some orders at 1.19 and then 1.18. We have Mario Draghi speaking on Wednesday and Thursday this week so that is going to cause some volatility around the single currency and any comments on the UK will move GBP/EUR.
The FX landscape will change on a daily basis for the time being so please do speak with us to put a strategy in place. As Tim Geithner said “a plan is better than no plan”.
If you have any questions please do let me know.
Have a great week.
Written by Liam Alexander.