Another rollercoaster week for Sterling coming up? It was sold off overnight on the opening in Asian markets due to the UK intimating a tough stance on any divorce payment with a threat to quit talks. The market took a bearish outlook and Cable (Sterling/Dollar) dropped from the 1.3040 handle through 1.30 the figure. Chances of the talks being a convivial affair? About as great as me becoming a Vegan and wearing double denim.
Sterling had a strong performance last week largely due to Retail Sales coming in significantly above expectations. UK Retail Sales were up 2% (QoQ) and 4.5% (YoY) beating forecasts by 1% and 2.6% respectively. Couple this with the sell-off in the US Dollar due to ongoing political woes, allegations and general calamity this has resulted in Cable (Sterling/Dollar) pushing through 1.30. The move has lasted as long as an ice cream in the sun.
You can view price movements on Sterling/Dollar on the graph below –
Up or down for Sterling/Dollar? It is easier predicting the British weather. You have investors putting crash helmets on in case President Trump can’t push through Fiscal Stimulus in the US. Does President Trump want a weaker US Dollar? Will the Federal Reserve on Wednesday give us further insight into a potential rate rise in the US in June? There are a multitude of variables that will drive markets this year. If statements are hawkish then this may give the Dollar a shot in the arm and boost its short-term direction. However, should the language veer on the bearish side then expect the US Dollar to be sold off later this week.
Have you utilised market orders with Aston? If you hold US Dollars and need to purchase Sterling you can look at last night as an example. Price movements are more and more severe on opening. If you have an order in the market then you can take advantage of the 24 hour market rather than through UK market hours. Please get in contact with the trading department and they can walk you through the process. Alternatively, feel free to contact me directly.
If we look at the Sterling angle then wage growth has stagnated to a pace where we’re now looking at reversing further. Add this to inflation creeping higher with estimates of just under 3% year end then Mr and Mrs Joe Bloggs will have less money in their pocket. Retail Sales last week were expected to disappoint to the downside although as detailed above they came in remarkably stronger. Looks like Mr and Mrs Bloggs are still spending away. Is it on credit? Are last week’s figures a blip? I would expect Retail Sales to disappoint by and large for the rest of 2017. This will weigh on Sterling. We also have the small matter of bullish talk from the politicians on Brexit negotiations. They have come out scrapping that’s for sure. Will this prove to be the best strategy or is a more accommodative approach required? We will have clarity on that soon enough.
I expect Sterling to struggle over the summer months. The Conservatives will win the election, barring a complete capitulation. Will this give Sterling a short-term spike? Potentially, although I expect the move to be reversed almost immediately. Risks are skewed to the downside for Sterling and the UK over the coming months. If you have a requirement to convert Sterling into US Dollars then do consider covering off some of your exposure on a SPOT basis at current levels after the recent move higher.
If you are selling USD back to Sterling consider placing market orders at 1.2950 and then stagger them at 50 pip intervals. Feel free to get in contact to implement these.
As suggested earlier this month we expected GBP/EUR to move lower as has been the case. This is largely down to an ever improving performance of the single currency. Indeed, the EUR/USD move that has pushed through 1.12 the figure this month has weighed on Sterling/Euro. On a monthly basis we hovered around the 1.20 figure for a brief period although since then we’ve moved lower. We have broken through the 1.16 level that now opens the door to a move below the psychological level of 1.15.
If you have a requirement to purchase Euro’s from Sterling then do consider locking in some at current levels to offset some of your risk. With a General Election coming up in a matter of weeks and negotiations with the EU starting in earnest a week or so after then there is going to be a lot of volatility. Eurozone data, with the exception of our Greek friends, is improving. I expect a strong stance from our European cousins at the outset of negotiations. This is likely to put Sterling on the backfoot.
If you have a requirement to purchase Euro’s from GBP then lock in a portion on SPOT at current levels. We might drift lower if EUR/USD continues its move higher. If you think we may see some upside for Sterling and a weakening of the Euro then consider placing in some near-term market orders. Please contact the trading department to discuss appropriate and achievable levels to aim for.
You can view the downtrend on Sterling/Euro last week on the graph below –
INSERT GBP/EUR GRAPH
This week is relatively data light. We have inflation report hearings out of the UK tomorrow, FOMC (Federal Open Market Committee) minutes out of the US on Wednesday, UK GDP (preliminary) (QoQ) and (YoY) figures out of the UK on Thursday and Durable Goods orders out of the US on Friday rounding off the week.
The next few weeks will see significant moves on currency markets. Please make sure you have a strategy in place if you have ongoing or upcoming requirements and feel free to get in contact with a member of the team at Aston.
Have a fantastic week.
Written by Liam Alexander