Two great symbols of American culture fought it out on Sunday night in the ultimate contest of strength, agility and mental acuity when one of the Kardashians announced that another one of the Kardashians was pregnant and won the Superbowl. Well played Kris Jenner, displaying a greater grasp of media manipulation than anyone from the Trump administration can even fathom.
Theresa May faces yet another looming spectre of malcontent amongst her government as our comedic Foreign Secretary BoJo and cohorts Gove and Rees-Mogg are lauded as a “dream team” by Brexiteers hell bent on leaving the customs union. Global stock markets are falling in what many are calling an obvious and natural correction whilst crypto currency values are also suffering from what appears to be a pre-Valentines sell off. No one can say that the last 10 days have been boring!
This week The Bank of England is expected to leave the interest rate unchanged at 0.50% after hiking it to its current level in November. However, they will likely move the market. In addition to the decision and the meeting minutes, the BOE will also publish the Quarterly Inflation Report, which contains a wider assessment of the economy and the path of inflation. This “Super Thursday” can be upgraded to “mega” with the publication of the Inflation Letter. Governor Mark Carney is obliged to send an open letter to the Chancellor of the Exchequer, Phillip Hammond, and explain why inflation breached the 1-3% range. This happened for a limited time and inflation is expected to fall. None the less, any deviation from a unanimous vote to leave rates unchanged will stir the pound. Afterwards, the assessment of the economy and more importantly, inflation, will have its say. Watch this space but don’t count your GBP chickens as Brexit negotiations maybe causing UK PM Theresa May more trauma and the US jobs report has not been fully priced in to value yet.
GBP appears to be nose diving again, certainly it has lost USD 4.20 since the beginning of the month and looks to be on a clear trajectory. Clients selling USD requirements might wish to take advantage of the recent moves by securing funds with a series of spot and forward contracts. By all means, please get in touch with one of trading team to make these arrangements.
You can see the movement on GBP/USD from last week to this morning on the graph below:
Interesting points to watch for include tomorrow when Germany releases industrial production figures which reported a rise in November, by a surprisingly strong 3.4%. Probably the same again here but with a downwards correction forecast of 0.4%. France will release their trade balance tomorrow. The continent’s second-largest economy has chronic trade deficits. The deficit widened to EUR 5.7 bn in November. A narrower deficit of EUR 4.8 bn is on the cards now. Germany to the rescue again as contrary to France, Germany has a very wide trade surplus, buoying EUR. After enjoying a surplus of 22.3 billion in November, a drop to 20.4 billion is on the cards now.
On Friday the UK announces its trade balance and Britain has a trade deficit that has widened since the EU Referendum. A deficit of GBP 12.2 bn was recorded in November although, a reduction to GBP 11.5 bn is predicted now. Clients selling GBP may want to hedge further downside risks by securing funds on spot or forward contracts before Thursday morning.
You can see the movements on GBP/EUR on the graph below:
EUR/USD managed to edge a bit higher but it certainly wasn’t easy last week where we saw USD attempt to recover. This week features a testimony from ECB President Draghi and a mix of many economic indicators. Headlines included core inflation finally ticking up back to 1% y/y but that was expected. In the US, the jobs report came out above expectations, 200K jobs gained and wages rising 2.9% y/y. It came on top of a slightly more hawkish Fed decision and helped the USD in its recovery attempts, which were certainly met with resistance by EUR, although it seems to continue to lose ground.
Please do not hesitate to get in touch with us to discuss any of the strategies we can provide you with to help mitigate downside risk on all of your currency exposure.
You can see the movements on EUR/USD 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 try and catch up on the Six Nations in the hope that no reality TV people will give the game away. Have a great week.
Written by Damien Lipman