Last week Sterling rose like the water level in the River Seine. GBP was up against the dollar to over 1.43 the figure. Will the dollar flood recede this week? Will Sterling give up the buoyancy aid it somehow found? Or will the Euro keep pouring further cold water on Sterling and the US Dollar?
You can view the movements on Cable (GBP/USD) on the graph below –
We peaked over 1.43 and have since had a retracement in recent trade back under 1.41 the figure. Sterling rode a wave of optimism on earlier than expected rate hikes from the Bank of England, the unemployment rate remaining at 4.3% and GDP figures surprising to the upside for Q4 with a print of 1.5% against expectations of 1.4%. All was going so well for Sterling. Then it wasn’t. Conservative Party infighting returned to the table and the all too familiar Brexit woes. We will see pockets of better than expected UK data although it only takes political uncertainty and details of a breakdown in transition talk strategy and negotiating stance to derail Sterling. The direction of Sterling this year is precarious. If you have a requirement to purchase USD from Sterling lock in some of the albeit reduced gains of the past week before we potentially see a sustained reversal in GBP fortunes. Please contact the trading department for a rate of exchange.
We have the US Federal Reserve meeting on Wednesday and the release of ISM Manufacturing data on Thursday. The release of the NFP (Non-Farm payroll) report on Friday rounds off the main events from the US this week. We don’t expect any policy change on interest rates. We expect a strong showing from the labor market although with the labor market almost at full capacity it will become more challenging to post better than expected figures. Expectations are for the creation of 175K new jobs in January. Anything above this figure should give some impetus to the embattled Dollar. We expect the unemployment rate to remain on hold at 4.1%.
If you have holdings in USD and need to convert back to Sterling consider implementing market orders from 1.40 and try and take advantage of moves lower in your favour. Please contact the trading department to discuss technical levels to execute at to give you the best opportunity of achieving the best rate at the best possible time.
We had the ECB (European Central Bank) meeting last week. Mario Draghi, the ECB president, didn’t talk down the Euro. He seems comfortable with the strength of the currency at present. He doesn’t expect any interest rate rises before the end of QE and sees inflation ticking up over the medium-long term. Due to the comments the Euro pushed higher with EUR/USD breaking through 1.25 the figure. This in turn nudged Sterling/Euro lower from the giddy heights of around 1.15 back below 1.14 the figure.
You can view the movements on GBP/EUR on the graph below –
With the UK continuing to struggle in Brexit talks Sterling may be coming up for some pressure. As detailed at the beginning of the month, I expect Sterling to come off against Euro in Q1. Throughout the course of the year I expect GBP to nudge higher against the Euro. If you have requirements to lock in for Q1 from GBP to Euro it may be worthwhile taking some risk off the table and fixing a price point to work from. Cover off a significant amount of your exposure and look at leaving a portion to play with should there be any moves in your favour.
If you are trading from Euro into GBP it may be prudent to lock in the recent fall from over 1.15 the figure. Yes, under 1.10 would be wonderful although if you look at things on a historical basis you are at very good levels to move back into GBP. Please contact the trading department for a SPOT price or to lock in a forward contract out on a 3 month basis.
Tomorrow we have GDP (QoQ) (Q4) and (YoY) (Q4) out of the Eurozone. Expectations are for 0.6% and 2.6% respectively. We also have the Governor of the Bank of England, Mark Carney speaking. On Wednesday we have inflation data out of the Eurozone in the form of preliminary CPI figures. The US data releases mentioned above rounds off the releases this week.
Market movements this year are likely to be severe. Please make sure you de-risk any currency exposure you have by working in partnership with us to create a strategy that best suits your individual requirements.
If you would like to have a detailed discussion feel free to contact me directly.
Have a fantastic week.
Written by Liam Alexander.