I am not going to mention too much about the Six Nations result but it is probably never wise to expect a win against the Irish on St Patrick’s weekend, despite St Patrick being a migrant Welshman. Theresa May has fixed the date to trigger the Brexit process next Wednesday, 29th March. The PM will be officially notifying the EU by writing a “Dear John,” to each of the other 27 member states, after which the divorce proceedings / negotiations can begin. Elizabeth Edwards (author of “Resilience”) gives the memorable line, “She stood in the storm, and when the wind did not blow her way, she adjusted her sails.” Whilst The PM and her Cabinet will be doing all they can to keep a steady hand on the tiller for HMS United Kingdom, Nicola Sturgeon remains cranky in more ways than one. As one of the largest potential threats to cause uncertainty for GBP value, Sturgeon’s bid for a second referendum on Scottish Independence will need to gain momentum to have a dramatic effect. Sterling had opened this week over 1% higher but has quickly lost ground over the course of today.
This is on the back of a weekend of G20 meetings where Reuters quotes Kenneth Broux, Head of Corporate Research, FX and Rates at Soc Gen, who said "This G20 is not really a big deal for the market, partly because the language on FX was maintained. The disagreement on trade and protectionism is new, but the meeting at a later date between U.S. President Donald Trump and Chinese premier Li could be more pertinent to where trade negotiations are headed," What is clear is the resistance of the other 19 member states of the G20 to Trumps plans for protectionism.
The Fed increased the US interest rate by 25bps to 1%. Widely anticipated across the markets due to recent hawkish comments from Fed members in the run up to the decision, they did not signal an acceleration in the pace of monetary policy. Further rate increases are likely to be gradual and the Fed’s assessment suggests two more hikes in 2017, putting the interest rate at c.1.375% and c.2.125% by the end of 2018.
Central banks were the focus of last week which delivered surprises in the UK and US. The BoE kept the interest rate unchanged at 0.25% and asset purchases at £435b in line with expectations. GBP was back above $1.24 this morning, the highest level since February, but has since fallen to mid $1.23 as the market closes for London. A disappointed market saw USD fall immediately after the event. EURUSD reached a high of 1.0745 and GBPUSD moved back up to 1.23. USD reversed some of the losses the following morning at GBPUSD-1.2250 and EURUSD-1.0710 which could have been the result of some profit taking. The US Dollar has opened the week on a softer note.
Conflict expected in Brexit negotiations and data suggesting a slump in growth has the potential to push GBP lower in Q2. For clients with a requirement to sell EUR we suggest a target level of around 1.13.
The Pound is believed to be largely undervalued against USD/EUR therefore once markets become more comfortable with the idea of Brexit we believe GBP might regain some of the losses over the past 9 months. But for now, the uncertainty is too great and the outlook for GBP for the next quarter remains to the downside.
For the period at the end of Feb/beginning of March EUR/USD pair traded within a narrow range of around 1.05-1.0650. Over the past two weeks the Euro broke above these levels and has slowly gained some momentum. We believe that EUR could come under some pressure with the upcoming the French elections at the end of April. A clean break below 1.07 could suggest a reversal in the recent trend.
As we add the finishing touches to this report it only remains for us to wish you well for the coming week and to remind you that no one has a crystal ball. Anyone that tells you they can predict the future with any degree of certainty maybe similar to the Siren’s call and may well lead to misfortune. However, some can offer you educated opinion and attempt to provide some thoughtful, common sense guidance. Not trading your currency requirements is as much of a risk and a gamble as trading. The markets will move, volatility will vary but whatever your foreign currency exchange and international payment requirements are, you can rely on the team here at Aston Currency to assist you to mitigate your downside risk and be efficient with your exchange rates.
Please keep your fingers crossed for us on Wednesday when we hear the results of our nomination for the “Foreign Direct Investment Award” for outstanding providers of financial services, currency exchange and related services.
Written by Damien Lipman