Sterling continued the move higher last week. Has the trend changed to a continued upside move or is this a short-term correction with a retracement lower due? Sentiment is about as easy to predict as the British weather at present.
Short positions on Sterling have been scaled back by a number of market participants due to above expectation data from the UK in recent weeks. Indeed, on Thursday Sterling rose against a number of currencies after UK manufacturing PMI data surprised to the upside. Cable (GBP/USD) rose to 1.3251.
The move higher continued on Friday after the release of the US NFP (Non-Farm payroll) figure. The figure disappointed to the downside with 151K new jobs created in August compared with an expectation of 180K. In addition, the employment rate remained unchanged at 4.9% against expectations of a shift down to 4.8%. What does this do to expectations of a US rate rise this year? It pushes it further back with September now off the table. December is still a possibility although it may be 2017 before we see a change in interest rates from the Federal Reserve.
The move higher has continued this morning with UK Services data in the form of Purchasing Managers Index surging to 52.9 from a seven-year low of 47.4 in July. Sterling climbed to its highest level since mid-July on the back of the release.
UK data has surprised most analysts with it being much more robust than expected. Will the UK continue to push Brexit fears to one side or are we yet to see the expected downturn? I would urge caution in thinking that all is going to be rosy and that we’re going to see a continued uplift in Sterling. With a number of Central Banks meeting this week and with warnings from the US and Japan to the UK at the G20 meeting in China I expect the tough negotiations and questions to come in the coming months. As stated previously, I still see Sterling pushing lower towards the end of the year.
If you have a requirement to purchase USD from Sterling please do consider taking advantage of the move higher in recent trading sessions. You can see from the graph below the move higher in Cable (GBP/USD) last week. Please contact myself or a member of the trading team.
On GBP/EUR, the move has continued apace. It’s been a double whammy of improved UK data and weak Eurozone data. Last week activity in the Eurozone’s manufacturing sector fell again in August for the third consecutive month. What will move Sterling/Euro this week? We have Inflation Report Hearings out of the UK on Wednesday followed by Consumer Inflation Expectations on Friday. In terms of the Eurozone we have GDP data released tomorrow then the main event of the week will be the ECB interest rate decision and Monetary Policy Statement and Press conference. Will the ECB act? I doubt it very much. We will probably get indications from the ECB that the QE target will be increased this year.
Short-term, we may see GBP/EUR challenge 1.20 the figure although I think we’ll meet with strong resistance at that level. If you can achieve 1.19 or above on GBP/EUR I would look to take advantage of those levels. Please contact myself or one of the trading team for a SPOT rate or to discuss appropriate levels on a market order basis.
You can see from the graph below the activity and volatility on GBP/EUR through last week.
If you are selling EUR back to GBP evidently the rate has pushed higher in recent trade. I would look to stagger orders to the downside at 1.19/1.1850 and then 1.18 to execute at over the upcoming trading sessions.
If you have any questions or would like to discuss your upcoming requirements please do let me know.
Have a great week.
Written by Liam Alexander