It's beginning to look a lot like Christmas

Everywhere you go…

A few inches of snow and suddenly the UK all but shuts down with flights cancelled, schools closed (because they cannot be heated rather than accessed) and consumer spending in the UK is set to hit a 5 year low in 2017, according to the credit card companies, themselves not usually known for their “Christmas Spirit” Bah Humbug! The overall squeeze on consumer spending has been blamed on a combination of factors, namely: inflation (which has been at a five-year high of 3% since September), the fall in the pound since June 2016’s Brexit vote, and stagnant wages.

Take a look in the five and ten, glistening once again,

(probably talking about the new polymer GBP notes…..)

With candy canes and silver lanes aglow

It has definitely been “one of those weeks” both in the world of international politics and in the markets but for very different reasons. None the less, we can’t all be a Scrooge….

It's beginning to look a lot like Christmas

Toys in every store….

 …..especially Theresa May who, on Friday, hailed “a new sense of optimism” in Brexit talks in her statement to Santa’s Little Helpers in Parliament. Reiterating that it was never going to be an easy process, she now fully hopes to be able to confirm arrangements set out last week, coining a new catch phrase that is about as meaningful as “Brexit means Brexit” when she said, “Nothing is agreed until everything is agreed.”

But the prettiest sight to see, is the holly that will be

On your own front door

GBP/USD

Cable rose and fell on the twists and turns in the Brexit negotiations in a volatile week principally based more on GBP’s fate than USD value. The focus for this week will return to are top-tier events with the inflation report, jobs, retail sales the Bank of England. An agreement on the Irish border was coming close and GBP spiked, only to crumble as the DUP opened the oven door too soon. A “regulatory alignment” on the Island of Ireland could then have opened the door to a softer Brexit for all, only for a compromise to be reached on the wording of the text related to the Irish border. 

The British government is still on the path to a hard and quite expensive Brexit and GBP value gave that back, in part, to USD. Over the pond USD continued to enjoy progress based on tax reform and seemed to ignore mixed data ahead of the Fed decision. So whilst the US economy has its own troubles, GBP remains under immense pressure. Clients selling USD requirements might wish to take advantage of the recent moves by securing funds with a series of spot and forward contracts.

GBP/USD movement can be seen on the graph below:

GBPUSD 11-12-2017.png

A pair of hop-along boots and a pistol that shoots

Is the wish of Barney and Ben

Dolls that will talk and will go for a walk

Is the hope of Janice and Jen

And Mom and Dad can hardly wait for school to start again

GBP/EUR

In the UK, we have inflation and wage data out for November which will give the market a brief break from politics, although, this won’t last too long as the EU committee will meet on Thursday to discuss Brexit progress. Inflation is expected to have remained unchanged at 3% and the unemployment rate at 4.3%. The data could provide some support to GBP this week. The main release for EUR are the PMIs due on Thursday. Both services and manufacturing are expected to edge lower therefore we could see a softer EUR at the end of the week.

Clients selling GBP may want to hedge further downside risks by securing funds on spot or forward contracts before Thursday morning.

 GBP/EUR movement can be seen on the graph below:

GBPEUR 11-12-2017.png

It's beginning to look a lot like Christmas

Everywhere you go

There's a tree in the Grand Hotel, one in the park as well

The sturdy kind that doesn't mind the snow

EUR/USD

The European Central Bank meets this week amid low inflation and no one knows how long the QE program will continue. We do not expect any great EUR reaction to the ECB announcement, but many commentators maintain their medium-term bullish view on EUR. Even after the somewhat disappointing October decision, EUR has been trading resiliently, though now the ECB may provide no fresh catalysts next week and EUR downside risks should be limited.

Into the middle of next year, many expect ECB communications to turn gradually more hawkish to let markets price the end of QE in September. Perhaps then another acceleration in EUR appreciation is likely despite more range-trading continuing for now. ECB President Mario Draghi did not rock the boat in his speech last week.

In America, hopes for fiscal stimulus faded early in the year, though are now on the rise again, with Trump’s tax plan. The Federal Reserve has maintained its plan for three rate hikes in 2017 despite lower US inflation. In the US, the significant progress on tax cuts sent the dollar higher even if the data were not always that great. The NFP report showed a healthy gain in jobs but also that wages are really stuck. The Fed is unlikely to rock the boat and hike. 

Euro movement against the Dollar can be seen on the graph below:

EURUSD 11-12-2017.png

It's beginning to look a lot like Christmas

Soon the bells will start

And the thing that will make them ring, is the carol that you sing

Right within your heart

Not trading your currency is still a risk. The markets will move, volatility and relative values will vary, and Santa might well get stuck trying to deliver presents at the same time as avoiding the Trump travel ban but whatever your foreign currency exchange and international payment needs, you can rely on the team here at Aston Currency Management. We will be here throughout the holiday period, trading on all but Bank Holidays.

Please do not hesitate to get in touch with us, we look forward to hearing from you. Now, if you will excuse me, I have to bake some mince pies and polish Rudolf’s nose. Have a great week, a very Merry Christmas and a Happy New Year from me. Liam will be back next week to round off the year. To be fair, his singing voice is a lot better than mine…. Ho! Ho! Ho!

Written by Damien Lipman