More good news for the UK from the Olympics on the medal count over the weekend. Unfortunately not such good news for our embattled currency Sterling. Indeed, it is tumbling quicker than Simone Biles the gymnast doing an ‘Amanar’ and a ‘Cheng’. (I didn’t Google those moves honest).

Sterling fell for a second week in a row last week and I expect that to become a third this week. Then a fourth. Sterling is playing out to the lyrics of the 90’s classic ‘Another day, another dream, but always you’ by the Real McCoy. I expect Sterling to continue the downtrend. Against the US Dollar the price action was choppy last week as can be viewed on the graph below.

 GBP/USD

GBP/USD

Cable (GBP/USD) had a bounce to levels around 1.3035 on the back of disappointing data out of the US in terms of Retail Sales and PPI (Producer Price Index) data. These modest bounces are going to be short lived and if anything traders/investors/market participants are going to use these to add to the deluge of bearish positions on Cable (GBP/USD).

I expect Sterling to fall further this week and throughout the rest of this year. I don’t see any short to medium term upside on GBP. With ongoing political uncertainty, the realisation we’re nowhere near implementing Article 50, monetary policy decisions that are expected to move rates lower and inflation higher, construction and services data showing contraction rather than expansion, business confidence hitting 4 ½ year lows and the historic knowledge that UK authorities are comfortable with a weakening Sterling I expect to see fresh lows on GBP/USD and GBP/EUR in the coming months. If you have requirements to purchase USD and Euro’s from Sterling please do consider locking some in at current levels. The rates look terrible compared with where we were pre-Brexit I agree. However, we’re going to have to get used to this new reality. Please contact myself or a member of the trading team for a rate of exchange.

The main event for GBP/USD this week outside of the UK data released will be the FOMC meeting on Wednesday. We should get hints on the timing of any potential rate rise from the US. If indications are for a September hike then this will give a further boost to the US Dollar. With US elections in November I would think a December rate rise is looking the most likely, dependent on election results.

Selling USD back to Sterling

If you are selling USD back to GBP please do consider covering off some of your exposure at current levels on a SPOT basis. Take advantage of the recent moves to the downside in your favour and de-risk some of your exposure. Might GBP/USD fall further? I think it will. Consider placing market orders over the coming weeks at –

·         1.29

·         1.2850

·         1.28

By executing some of your exposure on a SPOT basis you lock in a fantastic rate. By implementing market orders over the coming weeks it provides you with upside potential to take advantage of any further moves on the back of worsening UK data and improving US data. You’re continually ‘averaging up’ your annual rate of exchange. Please get in touch to discuss your individual requirements.  

We will shortly see more data released that will give us a clearer picture on how UK PLC is doing post Brexit. We have Retail Sales figures and Employment data out this week. We also have inflation data out of the UK this week in terms of CPI and PPI figures. If data is better than expectations then we may see a sharp rally on the Pound. I would say expectations are to the downside however.

EUR

Last week against the Euro it was a gradual downside move as can be viewed on the graph below.

 EUR/GBP

EUR/GBP

We’re at the lowest levels since 2013. If you’re a buyer of Euro’s please do consider covering off some of your exposure before we weaken further. I appreciate looking at the rate that it’s terrible and that a bounce to levels back around 1.20 would be most welcome. However, I don’t think we’re going to see that materialise any time soon. The downtrend is likely to continue and I expect us to break through 1.15 the figure in upcoming trade. If you have a requirement please do consider locking some in.

Selling EUR back to Sterling

On the sell side consider implementing market orders at 1.15 the figure to convert Euro’s back to Sterling. Please contact myself or one of the trading to place these in the market for you.  The docket is fairly light this week in terms of data although we have the ZEW Survey out of Germany and the ECB Monetary Policy meeting that may have an impact on the Euro. I expect the Euro to trade in fairly tight rates against Sterling and the US Dollar and any moves are going to be largely dictated by the UK and the US.

August is normally a fairly quiet month in the currency markets although this year is bucking the trend. Moves are likely to remain sharp with markets volatile and susceptible to data driven events.

If you have a requirement please do get in touch and we can discuss a course of action.

Any questions please do let me know.

Have a great week

Written by Liam Alexande