Will the Bank of England cut interest rates this week? Will the NFP (Non-Farm payroll) figure come in above or below expectations? Is Sterling going to weaken or strengthen against the US Dollar? Michael Ventris would have had an easier job deciphering the Linear B script. 

There are key events this week that will play a large part in determining the short to medium term direction on GBP/USD and GBP/EUR. Market participants will be focusing on the ISM Manufacturing PMI (Jul) out of the US this afternoon. A consensus figure of 53.0 is expected. Should we see a weak reading coupled with the surprisingly weak Q2 GDP figure released from the US last week then we may see some further Dollar weakness in the run up to Thursday. If you are USD buyer from GBP do consider executing a transaction prior to Thursday.

I think the Bank of England will cut rates at the August meeting. I was surprised rates were left on hold in July and I think the only question on Thursday is how much Mark Carney, the BoE Governor, cuts rates by. Will it be 50 bps or 25 bps? I expect it to be 25 bps so it allows them further room for manoeuvre down the line. There will probably be a resumption in QE (Quantitative Easing) and again, it is a question of how much and when. 50 billion, 75 billion? I am expecting the printing presses to be fired up again with an injection of 50 billion. There is of course the argument the BoE will leave Asset purchases to one side this week to again give them some further leeway down the line. Are the Bank of England slowly running out of ammunition? Are we potentially at the start of a ‘NIRP’ (Negative Interest Rate Policy)? We will have a clearer insight into the future direction of Monetary Policy come Thursday.

What is clear is that the uncertainty caused by ‘Brexit’ has damaged confidence in both businesses and consumers. Indeed, when consumer confidence is low that translates to Mr and Mrs Joe Bloggs sitting on the couch watching TV rather than spending in the shops. That means Retail Sales fall. In July they fell by the fastest pace in 4 years. On the flip side, that might mean people actually tune in to watch the shambles that the Rio Olympics is fast becoming. Is it all doom and gloom or is there an upside? I believe the UK will resume confidence although it will take a concerted and joint effort from the Bank of England, business, and the Government to make it happen. 

What does this all mean for Sterling? Has the pound found a support level around the psychological level of 1.30 the figure on GBP/USD? It appears so, for now. You can see the movements on Cable (GBP/USD) last week on the graph below.

GBP/USD 1 Week

You are all bored of hearing me say “doing nothing is speculating”. However, all the uncertainty and various noises from the IMF indicate that Sterling is still overvalued at present levels. If you have a requirement to purchase USD and EUR from GBP please do consider locking in some of your exposure on a SPOT basis prior to Thursday. If you can achieve over 1.30 the figure on Sterling/Dollar then I consider it a good level. We will have spikes on an intraday basis so consider implementing market orders to the upside on a percentage of your exposure. Please contact myself or one of the trading team for a SPOT rate and to discuss appropriate levels to aim for. Thursday and Friday are the key days this week with the Bank of England meeting on the self-proclaimed ‘Super Thursday’ and the Non-Farm Payroll figure due out of the US on Friday afternoon (UK time).

If you are a USD seller consider market orders at – 

·         1.3160

·         1.3075

·         1.2969

GBP/EUR

GBP/EUR has been trading sideways for a while although in recent trade a downtrend has resumed. If you look at the graph below you can see the volatility in GBP/EUR last week with a downside move becoming more exaggerated at the end of the week. 

GBP/EUR 1 Week

The beginning of this week has been no different. I expect us to break 1.18 the figure to the downside on the back of the Bank of England meeting this week. If you are buyer of EUR from GBP and can achieve over 1.18 please do consider locking in some of your exposure on SPOT short-term to mitigate some of your risk. Again, please get in touch with either myself or one of the trading team. 

If you are a EUR seller then you are in the best position since 2013 so it may be worthwhile covering off some of your exposure. Might the rate improve further for you by the end of the week? Quite possibly. Contact the trading team to discuss staggering orders to the downside.

The problems in the Eurozone aren’t going away any time soon and with systemic problems in the Italian Banking system and a number of them failing stress tests I expect the single currency to weaken in Q4. This should in turn drag GBP/EUR back above 1.20 the figure and if we can find support above that level there may be further upside with a push to 1.25 by end of year.

We can pretty much forget any data collated prior to June 23rd. It would be about as useful as the net for the skydiver without a parachute if he missed the target. Over the coming months we’re going to see a clearer picture as data gathered after ‘Brexit’ filters through. We’ll start to be able to build a clearer view on UK PLC. There will be significant swings on currencies for the foreseeable future with short term bouts of optimism pushing GBP higher then a realisation that there are still considerable risks and headwinds to navigate through. Volatility is going to continue so have a plan in place to mitigate your currency risk whilst leaving yourself room for some upside. 

If you have any questions please do let me know.

Have a fantastic week.

Written by Liam Alexander