The Summer social calendar is lighter for another year. Pimms and Strawberry sales will likely decline this week after the end of Wimbledon with Federer proving himself a true great. Lewis Hamilton won Silverstone once more putting himself in with a chance of proving himself a true great in the coming years. Will Sterling prove herself a true great later this week and climb the currency ladder? Hmmm. Whilst the aforementioned scale great heights in single bounds, I feel Sterling will limp slowly higher like a wounded asthmatic climbing Everest.

Why will Sterling struggle to move higher? The gains made last week against both the US Dollar and the Euro were largely down to those currencies weakness rather than any sustained Strength in Sterling. Indeed, we moved over 1% higher on Cable (GBP/USD) and Sterling/Euro last week.

You can view the movements on Sterling/Dollar below –

Why was the Dollar sold off? I think we can now take for granted that there will always be some political catastrophe waiting round the corner in the US. The Trump administration seem destined for ongoing shenanigans akin to the Netflix series House of Cards. That’s one reason.  Another few reasons are the inflation and retail sales figures out of the US. Inflation came in at 1.6% and Retail Sales fell by 0.2% last month against a consensus estimate of a jump of 0.1%. Consumer sentiment is also off. This weighed on the US Dollar.

In addition, we had the Federal Reserve Chairperson, Janet Yellen speaking. Her tone was slightly dovish so this dampened rate hike expectations for the remainder of 2017. I expect this tone to continue over the summer months with words like ‘gradual’ and ‘steady’ in relation to rate hikes. The dollar sell off helped EM (Emerging Market) currencies like ZAR and TRY rally. Another winner was the Aussie Dollar gaining over 1% against the US Dollar.

Where do I expect Sterling/Dollar to go in the next few months? I expect Sterling to come under further pressure over the coming months. Our Brexit ‘strategy’ is looking far from aligned at present with the Government doing its jolly best to send out mixed and confusing messages. Still, having listened to the Shadow Business secretary over the weekend I think we’re going to have to stick with the current incumbents to see this through. Data out of the UK recently hasn’t been all bad. The employment rate jumped to a record high and people out of work fell to the lowest level since 1975. Inflation however is at 2.9% and with wage growth stuttering this is going to start hitting the man on the street in the pocket. “What’s that got to do with the price of fish” is no longer just a phrase.

If you are USD buyer from Sterling lock in some currency at current SPOT prices or alternatively out on a short dated forward contract for the next three months. I would look at covering off a sizeable portion of your current exposure around the 1.30 mark. Please contact the Trading Department for a rate of exchange on both a SPOT and Forward Contract basis.

What do we have out this week that will move Cable (GBP/USD)?  We are light on US data after numerous releases last week. Any movements on Sterling/Dollar will be due to inflation data out of the UK on Tuesday, CPI (YoY and (MoM) (Jun) with expectations at 2.9% and 0.2% respectively. We also have the Bank of England Governor, Mark Carney, speaking on Tuesday. EUR/USD price action is also likely to move Sterling/Dollar with the stand out market event this week being the ECB press conference.

Sterling/Euro

All eyes will be on Mario Draghi this week. After his last press conference and language used the single currency turned bullish. EUR/USD moved from fighting the 1.12 level to now trade above 1.14 with eyes on another leg higher to the psychological level of 1.15 the figure. Will we get another strong performance and in turn see the Euro and bond yields push further higher? I have my doubts. I think Draghi will be more considered with the language he uses in relation to signals on monetary policy. Will a fixed date be set on when the bond buying program will be wound down? I expect Mario Draghi, the ECB president, to cool markets and expectations on tapering. I’d expect any announcement after the summer months. This ‘steady’ and ‘gradual’ language and approach will likely see the Euro weaken off slightly.

If you are a seller of Sterling and buyer of Euro’s then do consider firstly taking advantage of the move higher last week in Sterling/Euro. Please view the movements on the graph below –

We were trading in the 1.12’s last week so if you have any SPOT transactions to make consider taking advantage of the percent or so move higher. Please contact the Trading department for a rate of exchange. Also, consider placing orders in the market to take advantage of any volatility around inflation data out of the UK tomorrow or the ECB press conference on Thursday.

If you are a EUR seller and didn’t take advantage of the moves into the 1.12’s last week please get in touch and we can structure something for you to take advantage of any dips lower.

If you have any questions please do let me know.

Have a fantastic week.

Written by Liam Alexander