Everyone has put their Hawaiian Tropic away for another year and we’re getting back to business again. Yep, that’s right, we’re almost at the boot camp stage of X Factor.

This week we have a lot of data out of the UK, Eurozone and the US. I would expect us to start seeing increased volatility and liquidity now all market participants at back at their desk.

Sterling

It’s an important week for the UK with a number of releases that will move GBP. We have inflation data out in the form of CPI (YoY) (Aug) on Tuesday followed by the Claimant count (Aug) on Wednesday. Thursday is going to be the main day for Sterling with employment data released in addition to Retail Sales and then of course, the main event, or should that be non-event, the Bank of England meeting. I think after the BoE cut rates down to 0.25% and increased the asset purchase program by 60 billion in August we won’t see much action from Mark Carney, the BoE Governor, on Thursday. UK data has surprised to the upside and the end of world scenario post Brexit hasn’t materialised. Indeed, net short positions on Sterling have been scaled back and we may see a modicum of stability for the Pound. I still see downside risks for Sterling going into the end of year although perhaps not as heavily weighted as previously. We will have a much clearer idea after the aforementioned data releases this week. We may see an upside move on Sterling this week so if you have a short-term requirement to convert USD or EUR back to GBP this week I would look to execute a transaction prior to Thursday.

You can see the movement in Cable (GBP/USD) over the last five days on the graph below –

Medium term I see more potential for Cable (GBP/USD) to edge lower than I do for Sterling/Euro. If you have a requirement to purchase USD from Sterling do consider locking in some of your requirement on a SPOT basis whilst leaving yourself room to implement market orders and catch any spikes on the release of any above expectation UK data. If you would like to chat through your current requirements feel free to get in touch.

Euro

GBP/EUR is currently trading in a range. We’re not seeing a clear break in any direction with the 1.15-1.20 range holding firm for now as can be viewed on the graph below –

We have the ECB President, Mario Draghi, speaking on Tuesday that will give us a clearer picture on short-medium term direction on the single currency. I don’t expect any change in rates from the ECB although I do expect them to hint at the expansion of their easing policy as inflation and growth data continue to disappoint to the downside. Does the ECB have much left in terms of ammunition? Have negative rates had any impact? We’ll have further light shed on these topics on Tuesday when we hear from Draghi. Will it be Super Mario that turns up to the meeting refreshed from a summer break to buoy the Euro or will it be a continuation of ‘we’ll do whatever is necessary’ with nothing new to share? I expect GBP/EUR to push up slightly going into Q4 so if you have a requirement to convert EUR back to Sterling please do get in touch to take advantage of the current rates. If we look at things pre Brexit we topped out around the 1.42 figure. You’re in a significantly improved position to purchase Sterling.

If you are a buyer of Euro’s from GBP then yes, rates aren’t fantastic, although we are now in a ‘new normal’. It also isn’t so long ago that anything around 1.15 was considered ‘fair value’ on GBP/EUR. I would suggest in current market conditions if you can achieve 1.17 on a SPOT basis and then look to implement market orders around 1.1850-1.20 then you’ll achieve a competitive rate of exchange. Please contact myself or one of the trading team to discuss.

USD

Will they, won’t they? That’s the question going into the remainder of the year for the Federal Reserve to answer. I believe there is a chance of rates being raised by the US in December that will reinstate a policy divergence between the Eurozone, the UK and the US. I think September is highly unlikely that we’ll see a rate rise although we had two Fed policy makers last week making hawkish noises that there is an expectation for a rate rise due. The main data out across the pond is Retail Sales this week. They are expected to be flat in August although any improvement on the number and we may start to see Dollar bulls come back into the fray. I would expect a slight strengthening of US data this week in the form of the Michigan consumer confidence survey and an uptick in inflation data.

Evidently the main event/risk for the US Dollar will be the November elections. Could it be another Brexit scenario? It’ll never happen, surely? Could Donald Trump gain the presidency? I would say anything is possible in the current global climate. I’d suggest the US Dollar would weaken considerably if that occurred so if you are a USD seller I would look to cover off some of your exposure and hedge some of your risk. Likewise, if you are a USD buyer, hedge some of your risk as if Clinton gets in, then I would expect to see a bout of USD strength.

I think all indicators are pointing towards a stronger dollar going into year-end so please do position yourselves accordingly.

There are numerous risk events that could significantly move currency pairs over the coming months. Please do discuss a plan of action with us to mitigate your risk as much as possible

Kind Regards,

Liam Alexander