After all of the homegrown terror of the false alarm ruining weekend "luau" in Hawaii, Trump allegedly using unfortunate “colourful” language to describe an already heavily beleaguered Haiti. And the previously unimaginable requirement for him to have to declare himself “not a racist”. Today, in the US they are celebrating Martin Luther King Day. The irony is not lost on us here in the UK and we are celebrating a remarkable rally for GBP against USD and wondering what happened with EUR. Things may change tomorrow but for now, today has had something for everyone.
A softer USD and higher GBP saw Cable close the week climbing back from 1.346 to well above 1.37 for the first time since June 2016. GBP climbed to hold at just over 1.38 today. GBP may well lose some of it gains tomorrow when the US gets back to work but they must come to terms with how Trump has chosen to describe Haiti. Will the dollar weakness persist in the coming weeks? The pair is heading towards 1.3834 (low of 2016 H1) where we could see some resistance. A clean break above this level could suggest further upside towards 1.40.
No matter what happens over the next week, if you have to move GBP to USD in your budgeting for the year, you may also wish to consider taking some of your risk off the table by fixing forward rates of exchange, at least for part of your exposure. Please contact one of the team to discuss mitigating risk over the coming financial year.
GBP/USD movement can be seen on the graph below:
Data will be light over the next few days. In the UK inflation figures, due on Tuesday, are expected to have cooled in December to 3.0%. Retail sales figures due on Friday will also gather some interest as sales are expected to have fallen last month. If numbers come ahead of the forecast this could help lift GBP further but the currency will be all the more sensitive to Brexit related headlines. There are no key releases for the Euro-area except for inflation data out tomorrow morning (16th) which is forecast to ease to 3.0% compared to the same time last year, from 3.1% in November. CPI is expected to remain unchanged at 1.4% (year-on-year) for December.
Please consider mitigating further downside risk to EUR value and possibly take a view with spot trades in the short term. The longer term consensus view is moving away from GBP crashing against its usual comparators but there are still those that think recent events are simply GBP climbing to a higher diving board. Recent highs may be a good time to consider fixing forward rates.
GBP/EUR movement can be seen on the graph below:
If you were looking for some small excitement in the form of volatility, then you have come to the right currency pair. EUR/USD hit the highest levels in over three years today topping out at just under 1.228. Is there more to come? Final inflation figures stand out in the week before the ECB decision. EUR is now clinging onto its gains like someone who can’t let Christmas go and won’t take down the decorations. You know who you are. If reports from China are correct, their diversification away from US Treasuries may be beneficial for the world’s second currency (EUR). In addition, the gradual advance of the ECB towards removing stimulus contrasts the Fed’s dilemma with low inflation. To plan through a strategy for EUR/USD exposure please contact your relationship manager.
Euro movement against the Dollar can be seen on the graph below:
Not trading your currency is still a risk. The markets will move, volatility and relative values will vary but whatever your foreign currency exchange and international payment needs, you can rely on the team here at Aston Currency Management. Please do not hesitate to get in touch with us, we look forward to hearing from you. Now, if you will excuse me, I am going to have a row about whether or not it is bad manners to leave a Christmas tree up.
Have a great week.
Written by Damien Lipman and Tillie Grothier