Storm Brian hit Britain and caused ‘devastation’ and ‘chaos’. Well, some wheelie bins were blown over. As usual, sensationalism is the order of the day. Brexit headlines will no doubt continue in the same vein for the rest of 2017 at least.

Deal or No deal? The Brexit tension builds like Noel Edmonds television show. It is unlikely there will be a resolution on transition terms before Christmas so Sterling is going to move up and down on the back of political commentary and point scoring.

Sterling/Euro

The ongoing Catalonia issue in the Eurozone isn’t having much of an impact on the single currency. In any case, it will be swept aside this week with market participants focusing on the ECB meeting. The ECB president, Mario Draghi, is likely to start the long awaited tapering of QE. This is a significant event and probably the most significant for the rest of 2017 in terms of market direction. Bond purchases are likely to fall from €60B to around €20-€30B Euro’s a month next year. Slow and steady she goes. That’ll shove the interest rate hike conversation in the Eurozone down the road perhaps to the following year. I expect the Euro to rise this week on the back of tapering. The single currency has been the star in FX markets this year. It has lost some of its momentum of late although it is still up 12% against the US Dollar this year. Against Sterling it has also fallen back slightly.

You can view the movements last week on GBP/EUR on the graph below –

GBPEUR 23-10-2017.png

I expect GBP/EUR to tick back down below 1.10 the figure again. The challenge for the ECB is containing the surge on the single currency. Look around. Sterling isn’t hurtling upwards anytime soon. The US Dollar? Yes, it may be easier now after the Senate vote to get fiscal stimulus into the economy although I don’t see the Dollar moving significantly and quickly in an upward direction. That leaves the Euro. The Eurozone economy is performing well. Political storms have subsided for now with closer integration the theme. It is a balancing act for Mario Draghi. He doesn’t want the single currency to rise too much as this will harm European exports and put the brakes on hitting their inflation target. Personally, I think the ECB and the Eurozone can handle a stronger Euro at present and I don’t think they’ll be overly concerned on the exchange rate for now.

If you are holding Euro’s and need to convert into Sterling or US Dollar please contact the trading department to discuss SPOT rates and also the implementation of market orders. There is likely to be some sharp movements around the ECB announcement so try and take advantage of moves in your favour.

Sterling is on a see-saw at present. Moves will be dictated by Brexit related news. The inflation figure out last week came in at 3%. This should, and I say should rather than will, translate to a rise in UK interest rates at the November meeting. Whilst I think rates should, on balance, rise, I’m not 100% convinced they will. Language from the Bank of England has been more dovish of late. Retail Sales also dropped more than expected in September. Consumer debt figures will likely ramp up further going into the festive season. I’m still negative on Sterling although a rise in UK interest rates and ‘good’ news on Brexit could see Sterling rally. However, I think this rally will fade rather quickly if it materializes.

Sterling/Dollar

It’s about as subdued as Storm Brian. It doesn’t really know what it wants to do. It whips up a frenzy and breezes up above 1.32 the figure then changes direction, shakes a few trees mildly aggressively, then comes down meekly to the 1.31’s and hovers there.

You can view the movements on Storm Brian, I mean GBP/USD, on the graph below –

GBPUSD 23-10-2017.png

As discussed last week, I don’t see any huge shift out of a tight trading range on Cable (Sterling/Dollar) for the rest of 2017. If you are a USD buyer consider locking in some at current rates and achieve over 1.30 going into end of year. Please contact the trading department for a rate of exchange. Have you looked at your Q1 ’18 requirements yet? It may be worthwhile having a conversation with us to start putting a plan in place for your currency requirements. Next year is likely to be even harder to predict with us closer to the proverbial cliff edge dependent on Brexit negotiations.

If you hold USD and need to convert back to GBP get in touch and we can stagger market orders for you to the downside to take advantage of moves.

Data out this week, we have GDP (QoQ) and (YoY) (Q3) figures. These are expected to come in at 0.3% and 1.4% respectively. As mentioned earlier, the ECB meeting and press conference is the main event of the week so please make sure you have a plan in place before Thursday. Rounding off the week we have GDP figures out of the US that will move the US Dollar.

If you have any questions please do let me know.

Have a fantastic week.

Written by Liam Alexander