Please allow me the opportunity to apologise for the fact that this report is a little later than usual… Mia culpa! I don’t know if you have noticed but apparently its snowing and we have all been hit by the “Beast from the East”. That’s my story and I’m sticking to it. The Slipstream wind and weather system has carried out a “crazy Ivan” manoeuvre and now we are suffering some of the worst temperature drops in recent history. Of course, the currency hobbits here at ACM have remained stoic in the face of the chilly onslaught. Its too cold to type in the Sales Team igloo so I will keep this brief.
Last week we discovered that the UK suffered an increase in unemployment during Q4 2017 but wages (not including bonuses) rose by 2.5%. This information caused GBP to suffer a fall against USD and put the wind up a few investors, fearful that an increase in unemployment could reduce the anticipated interest rate rise in May.
This week the focus came yesterday as Jerome Powell gave his first testimony to Congress on the economy and monetary policy and US GDP figures are released later. The US is currently riding high on wage growth and expectations of an increase in interest rates is calling yet again.
GBP struggled to break beyond the 1.40 level until Monday this week and looks unlikely to do anything dramatic (famous last words). A lot will also ride on Theresa May’s speech on Friday. More on that below.
GBP/USD movement can be seen on the graph below:
Our Prime Minister is set to deliver a keynote speech about the future trade relations, that her government wishes to have with the European Union on Friday, following a cosy weekend at Chequers. Generally speaking, the markets would prefer a continued membership in the Single Market and the Customs Union, but the hard-Brexiteers would prefer a looser relationship. Frankly, as one commentator put it, “Europe is skipping into a federal utopia with Macron, whereas the UK is now starting to appear a little desperate to get into bed with both China and the US. If there were some reasons to stay in the European Union, it would only be for the sake of the kids in the City. After all the acrimony of Brexit, all the romance has gone.”
May’s speech should help clarify the direction of the government but be ready for GBP to not only move on the speech but also on the reaction by the European Union. A warm welcome would be positive while a rejection of May’s proposals would weigh on GBP value. In truth I think the reaction maybe a little flaccid from GBP.
As an interesting aside, Mark Carney, The Governor of the Bank of England, will speak at the Scottish Economics Conference in Edinburgh and his topic is cryptocurrencies. #justsaying
You may wish to consider setting EUR market orders for an anticipated down turn for GBP value on Friday. Please do not hesitate to get in touch with the team to discuss this.
GBP/EUR movement can be seen on the graph below:
EUR/USD had a more moderate week, ending on lower ground. Will it continue falling or is it only a correction? A speech by Draghi and inflation figures are in the limelight. Both the IFO and ZEW German business surveys disappointed and so did Euro-zone PMIs. The forward-looking figures still point to growth though. In the US, the FOMC Meeting Minutes showed a relatively hawkish stance, boosting USD and setting the tone for the week. The greenback’s recovery continued, but the move is somewhat cautious.
EUR/USD dropped following Powells testimony. Clients looking to mitigate further downside risk may wish to consider locking in a spot rate now.
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 have to check on my huskies and prep my sled. Have a great week.
Written by Damien Lipman