Sterling staged a rally last week against the US Dollar and the Euro. The comeback proved as short-lived as some of the contestants auditions on the X Factor. Where might Sterling go now? I would suggest south, hopefully like the aforementioned show’s viewing figures.

Sterling/US Dollar hit highs around 1.3275 on Friday. We’ve since had a retracement of the move with the US Dollar gaining traction after Janet Yellen (Federal Reserve Chairperson) spoke on Friday. She said the case for raising rates is getting stronger due to the solid performance of the labour market. In addition, the Federal Reserve’s outlook for economic activity and inflation is pointing towards a shift higher in interest rates. September is still on the table although I think December is the more likely option (the small matter of Trump versus Clinton has to be resolved in November) . So for now, it is more of the same from the US. Some ‘watchful waiting’ on data and they’ll pull the trigger eventually.

The majority of UK data has surprised to the upside in recent weeks. Will this continue? I think not. Data from next month and into October will give us a clearer picture of UK PLC post Brexit. Some of the data recently published has elements of pre June 23rd. Data out this morning from the UK came in below expectations. I would expect us to see a slight weakening in upcoming data. I don’t think we’re going to enter a recession or the fallout from breaking ties with the EU is going to be a disaster although I do think the UK economy will come under pressure in the next few months and into early 2017. I would expect Sterling to weaken further.

If you look at the graph below for last week to this morning you can see the volatility on Cable (GBP/USD) –

Do you have a requirement to purchase US Dollars? If so, please do consider placing orders in the market to the upside to try and take advantage of any spikes on an intraday basis like we had last week. If you can achieve over 1.30 to purchase USD I believe in the current market, that’s a good level to achieve. Market participants have placed an extremely high number of bearish positions on GBP/USD so I would expect Sterling to get pushed lower with us targeting 1.3020 to the downside then breaking through 1.30 the figure to target the 1.2960 level.

If you are a seller of USD back to GBP please do consider placing orders in the market to the downside to take advantage of expected Sterling weakness and US Dollar Strength. Please contact myself or one of the trading team to discuss implementing a market order.

GBP/EUR

Sterling/Euro is proving as directionless as England’s last European Championship campaign. Sterling climbed last week although it has since given up all its gains against the single currency. Downside risks persist for GBP/EUR and I expect us to break lower in upcoming trade.

If you are selling Euro’s back to GBP and can achieve under 1.1750 I would suggest it may be worthwhile locking in some on a SPOT basis. Please contact myself or one of the team for a rate of exchange.

Buying Euro’s from Sterling? As I always say doing nothing is speculating. We may see spikes on GBP/EUR as we did last week although I expect these moves higher to become more limited. Please see the graph below for the movements on GBP/EUR last week to this morning.

I would look to cover off some of your exposure either on SPOT or place market orders at staggered levels to try and achieve some upside. Can you afford for GBP/EUR to be trading at 1.12-1.14 for the remainder of 2016? Please get in touch and we can discuss appropriate levels to aim for.

Data out this week

We have a relatively light calendar this week and with people still on the beaches movements might be limited ahead of things being ‘back to normal’ in September. We have unemployment data out of Germany tomorrow and inflation data in the form of CPI (YoY) (Aug). Thursday attention heads across the pond with ISM Manufacturing PMI (Aug) and ISM Prices Paid (Aug) released.

The main event of course this week is the NFP (Non-Farm payroll) figure released on Friday. Should the figure come in above expectations then we’re going to see a further strengthening of the US Dollar.

If you have any questions please do let me know.

Have a fantastic week and enjoy the last few days of August.

Written by Liam Alexander