Choose Trump, choose mind numbing twitter feeds and chaotic economic policy, choose ‘Brexit’ and wonder how the UK will passport goods and services into other countries. Choose to sell Sterling then wonder why inflation goes through the roof. Choose a squeeze on UK household spending. Choose waking up in 2017 and wonder what currency markets are doing. Choose wondering where GBP/USD and GBP/EUR is likely to go. Choose wondering if the UK is going to be better off longer term. Choose your future. Choose guessing what happens next…

Will Sterling continue the recent rebound and has there been a shift in sentiment around the pound? We had a sell-off in Sterling on Monday morning last week then we had the largest one day bounce in recent trade on the back of Theresa May’s speech. We opened up this morning above 1.24 the figure. Sterling gained further support last week with positive inflation and wage data. I expect inflation to break the 2% Bank of England target rate in the coming months. Will we then have more market talk on interest rate hikes? I would expect this to filter back into conversation over the next month.

You can see the movements on GBP/USD last week on the graph below –

GBP/USD graph

We are going to be in for a year of uncertainty. We have PM Theresa May kicking off the UK’s industrial strategy today although that is likely to be secondary this week to the Supreme Court ruling on who can trigger Article 50. Once we have this ruling then hopefully it is another step towards clarity in an increasingly complicated process. We have opened our negotiating stance with the EU although it is just that, an opening. Positions are going to change, there are going to be a lot of compliments, mudslinging, reversals, agreements, non-agreements throughout negotiations. Expect Sterling to trade in a wide range this year.

Sterling/US Dollar

Some Banks have forecast 1.06 on Cable (GBP/USD) out for 12 months. Some have forecast 1.35. If you have a Sterling/US Dollar exposure please get in contact. It is best to have a plan in place and lock in a trade so you have a figure to work from. It also takes some risk off the table and mitigates some of the expected volatility for the year. If you are a buyer of USD from GBP I would look to take advantage of the recent move higher and lock in some USD either on a SPOT basis or out on a 3 month Forward contract. The upside move is a combination of a short-term change in view on Sterling and a sell off on the Dollar pushing us up to an intraday high of 1.2473 so far in the London trading session. Might Cable (GBP/USD) move higher on the back of a further USD sell off? Possibly. I still think downside risks remain for the pair with Sterling battling with continuing political and economic uncertainty.

If you are a seller of USD back to GBP cover some of your requirements off on a SPOT basis and then stagger market orders to the downside to take advantage of moves lower in the Pound. I expect GBP/USD to tail off and push lower. I would consider placing orders at 1.24 then 1.2350 to the downside to take advantage of any reversal. I expect strong resistance at 1.25 the figure so we may see some tests of the high 1.24s although I expect to see a general retracement lower in the trend. If you would like a rate of exchange please get in contact with either myself or a member of the trading team.

We have a fairly quiet week on the data front with Preliminary GDP (Q4) figures out of the US likely to be the main market mover of the Dollar. Of course, if Trump decides to announce anything of note or smash out a few ‘tweets’ at 4am then who knows what that will do to USD.

Sterling/Euro

After testing lows in the 1.13’s last week we have had a bounce higher and hit the swashbuckling heights of 1.16 in earlier trade. Will this upside move continue? With the Euro sitting on the side-lines at a party waiting to be asked for a dance the move on this pair is going to be Sterling dependent. I don’t expect us to hold around 1.16 for a sustained period. If you can achieve above 1.15 to purchase EUR from GBP it may be worthwhile securing a portion of your Euro’s at this level. Please contact me for a rate of exchange. If you think we are going to see a reversal in the EUR/USD shift higher through 1.07 figure and see a downtrend resume with more calls for parity then this will push Sterling/Euro higher. If you would like to implement a market order to take advantage of any upside potential please get in touch and we can discuss appropriate levels to aim for dependent on your timeline.

If you are a seller of EUR back to GBP then consider locking in some on a SPOT basis. Might GBP/EUR break through 1.10 to the downside at some point? Possibly. Might we push back above 1.20 in the next month? Equally as possible. As I always say, doing nothing is speculating. Take advantage of the general Sterling weakness and lock some in. If you think we’re going to see that push lower then implement some take profit orders under 1.15. Please contact me to implement these.

Last week the ECB kept rates on hold and kept the Asset Purchasing Program at 60 Billion Euro’s. Are we going to see any sizeable changes in policy or rates from the ECB any time soon? Unlikely. 

We may see a movement on GBP/EUR with Draghi speaking this evening and on the release of Preliminary UK GDP (QoQ) and (YoY) (Q4) on Thursday.

You can see the movements on Sterling/Euro last week on the graph below –

Sterling/Euro graph

Expect continued erratic moves in the currency markets that will largely be dictated by our political ‘elite’.

If you have any questions please do let me know.

Have a fantastic week.