This week is all about ‘Super Thursday’. For the first time in 10 years it looks like we may have a rise in interest rates. Will the Bank of England Governor, Mark Carney, follow through this time or will he disappoint the market (again)?
On balance, I think rates will be raised for the first time in 10 years by 25bps. I don’t think the BoE Governor can cry wolf again on a rate rise. It will likely be a 7-2 vote from the MPC in favour (Monetary Policy Committee). Any substantial upside move for Sterling will likely have been priced in already although it will move Sterling higher. It won’t be a unanimous vote which I think the first rate rise in a decade should be. Therein lies the rub. If the people voting on an interest rate rise can’t agree around the table then how does anyone else? If they can’t all agree, then a rate rise shouldn’t be forthcoming. I’d argue the UK economy isn’t exactly swinging from the rafters in terms of wage growth and productivity and a rate rise may damage a fragile ‘recovery’. Add in consumer debt, the small matter of inflation that is likely to climb slightly higher short term, uncertainty surrounding Brexit then you can argue we should hold off on a rate rise. However, as stated at the outset, I think the BoE will raise rates. Expect language of ‘slow’ and ‘steady’ to be the order of the day should rates move higher.
With all this uncertainty, if you have a Sterling requirement and FX exposure on either the buy or sell side please get in touch prior to Thursday.
You can view the fluctuations on GBP/EUR on the graph below –
Sterling/Euro is edging up slowly although there is no firm momentum behind the move. If you are a buyer of Euro’s from Sterling it may be worthwhile locking in some on a SPOT basis prior to Thursday. Please get in touch with the trading department for a rate of exchange. The single currency seems to have lost some of its lustre of late with EUR/USD coming off to around 1.16.
I would look at implementing market orders to take advantage on EUR/GBP and EUR/USD should there be a rebound.
Sterling/Dollar is struggling to gain a solid footing above 1.32. As discussed previously, we think Cable (GBP/USD) will end the year around 1.32 so I don’t see a huge change in pricing into the end of year. If you can achieve above 1.32 on GBP/USD I would take advantage at this level. We can implement a market order to execute at 1.32 for you on a GTC (Good till cancelled) basis.
If you are selling Dollars back to GBP or EUR I would take advantage of the recent moves and cover off at least a portion of your exposure on SPOT prior to Wednesday this week when we have some key data releases from the US.
The US Dollar may prove to be the strongest of the currencies going into Q1 next year with them ahead of the curve on interest rates, Q3 GDP coming in above expectations at 3% instead of the consensus estimate of 2.5%. Will GBP/USD move back below 1.30? Quite possibly. ‘Super Thursday’ in the UK will have a big say on the short-term direction as will the Federal Reserve meeting.
You can view the moves last week on Sterling/Dollar on the graph below –
We have a fairly heavy US data calendar this week with ISM Manufacturing (PMI) (October) and the Federal Reserve Monetary Policy Statement and Interest rate decision released on Wednesday. We also have the NFP (Non-Farm Payroll) figure released on Friday rounding off the week.
If you have any questions, please do get in touch.
Have a fantastic week.
Written by Liam Alexander