Sterling took a bit of a beating last week on Brexit related news. Sterling/Euro declined and printed under 1.12. However, politics in Europe may come to Sterling’s rescue this week. Arsene Wenger may not be so lucky.

Brexit chatter is likely to take a breath with Europe being the markets focus as well as President Trump. Merkel begins her fourth term as German Chancellor after near 6 months of uncertainty. The Italians went to the polls yesterday and a hung parliament was announced. The populist movement continues it seems. This has led to the Euro being on the backfoot. EUR/USD is trading under 1.23 the figure. President Trump has announced tariffs on steel and aluminum imports so expect the phrase ‘trade wars’ to dominate headlines this week.

You can view movements on Sterling/Euro on the graph below – 

GBP/EUR - 1 Week

The main event for the Euro this week will be the ECB meeting on Thursday. Headlines will be on Italy although this will have limited impact until the dust settles and alliances are formed. Mario Draghi, the ECB President, is likely to signal that easing will continue for the foreseeable future. Inflation is running below target and the ongoing strength of the Euro isn’t helping. Interest rates will be kept on hold so the press conference will be the focus on Thursday. Are the ECB happy with the current strength of the Euro? Will they look to talk it down? I expect the Euro to come under some pressure this week.

If you are holding GBP and need to convert into Euro please contact the trading department to implement market orders. I expect a move higher so make sure you have discussed technical levels with the trading team to achieve the best rate at the best possible time. 

We have had Markit Services PMI (Feb) out of the UK this morning with a print of 54.5 against a consensus estimate of 53.3. Sterling has had a jump on the back of the release. Out of the UK this week we have MPC member Andrew Haldane speaking so any comments around Brexit may shift Sterling. Please make sure you have a strategy in place this week to protect against any adverse movements.

Sterling/Dollar

We have moved back below 1.40. 

You can view movements on the graph below –

GBP/USD 1 Week

If you hold USD you should consider locking in a significant amount of GBP at current levels. Might we move lower? Possibly. However, we have been over 1.42 in recent trade so I would look at taking advantage of the retracement lower. Please contact the trading department for a SPOT rate or to lock in some GBP on a Forward Contract.

Cable (GBP/USD) is likely to have a short-term rebound so as detailed above consider acting on converting USD/GBP before we move higher. Sterling has ticked higher on the back of PMI figures out this morning already. Might we move back to 1.40 the figure this week? Quite possibly. We have a number of data releases out of the US this week on top of Donald Trump ‘making America great again’ by instigating a potential international trade war. The main release for the US Dollar will be the NFP (Non-Farm payroll) figure on Friday. Consensus estimates for the figure is for 200K. Anything above this figure may give the Dollar a further shot in the arm. Anything below this number and we may see the Dollar lose ground. Please make sure you have a strategy in place for this week to mitigate your currency risk.

Any questions please do let me know.

Have a fantastic week.

Written by Liam Alexander