Will Sterling continue the downward trajectory? Is Donald Trump likely to say something controversial again? Yep. I think we’re going to push through June 24th lows before the end of the year on GBP/USD and GBP/EUR.
Tonight we have the first debate in the US election run up. Media attention will slowly start to shift from all things Brexit to all things American in the coming weeks. Could Donald Trump conceivably become US President? The polls are showing he’s gaining on Hilary Clinton. The US election is the risk event for currency markets going into the end of year. I expect volatility to increase dramatically over the coming months. Please get in touch with a member of the Aston team to discuss your currency requirements for the remainder of the year.
Sterling/Dollar has continued the downside trend. You can see the movement on GBP/USD from last week to this morning on the graph below –
I expect further downside moves. If you are a US Dollar buyer then please do consider locking in some USD. Yes, the rate makes for painful reading although I expect us to challenge support levels of around 1.2865 on the way down to 1.25 the figure. Can you afford for it to be under 1.25?
We had the Federal Reserve meeting last week and as widely expected Janet Yellen kept rates on hold. However, there were three dissenters this time from voting members of the FOMC. If the labor market continues to improve and no major new risks develop then I would expect rates to still rise this year. Of course, the outcome of the US election will play a part even though politics aren’t meant to play a part in a Central Banks decision making process. The Fed dot plot suggested the board sees only one rate increase this year against the two expected following the June meeting. We have Janet Yellen speaking a couple of times this week so her comments will move the Dollar.
I expect us to see a strengthening US Dollar over the coming months. The US growth rate will likely come in above expectations this week. Couple the strengthening Dollar with Brexit hit Sterling then all the indicators suggest we’re going to see Cable (GBP/USD) come off further. We’re likely to have divergent monetary policy between the US and UK with Mark Carney expected to cut rates before the end of the year. If you have USD holdings consider executing 50% of it on a SPOT basis. Rates are fantastic so take some of your risk off the table. I do think the rate will improve further so consider implementing some market orders to try and take advantage of any moves on an intraday basis. Please contact me to discuss appropriate levels to aim for.
Sterling is likely to remain under considerable pressure. Uncertainty on what kind of deal we’re going to get from the EU and when Article 50 will be invoked is going to weigh on the pound. The next few months between Britain and the EU is the dancing round the ring sizing each other up stage. Beginning of next year is when the gloves come off. I don’t see much upside for Sterling over the coming 3-4 months. We will of course have some spikes on an intraday basis on the back of some data showing signs of improvement. However, we aren’t going to see a sustained stream of good news.
Sterling/Euro is seeing further losses. The single currency is tougher than old boots. It has continued its fightback and coupled with the dire performance of Sterling we’re set to challenge the 2016 low of 1.1460 in upcoming trade. You can see the movements on GBP/EUR on the graph below -
We have Mario Draghi speaking later today in Brussels where he’ll comment on the region and economic performance. I don’t expect there to be many new insights from him and it’ll be a case of the Eurozone tumbling along as usual. We have inflation data in the form of CPI released from the Eurozone on Friday. If you hold EUR I would suggest now is a good time to convert some of your holdings on a SPOT basis and take advantage of the move. Please contact the trading team or myself for a rate of exchange. Do also consider implementing orders to the downside should we see further moves lower.
If you hold Sterling and need to purchase EUR then it is a question of do you sit tight and hope the rate improves or act now? As I always say, doing nothing is speculating. Yes, the rate may go back up to around 1.17/1.18 or may challenge 1.20 again in time. However, it could just as easily target 1.10 over the coming months. A further fall of 4-5% can by no means be ruled out. Please contact a member of the Aston team and we can chat through how best to mitigate your risk and leave yourself some room for upside potential.
If you have any questions please do let me know.
Have a great week.
Written by Liam Alexander