The Duke and Duchess of Cambridge gave us all something to smile about yesterday as the world welcomed their third child. Sunday saw the hottest day for a London marathon since records began and Prince Harry joked about the “organised chaos”. Speaking of which, whilst the world shifted its attention from US Stormy weather last week, all eyes were on Syria and GBP looked like it was well on its way to achieve levels not seen since before the Brexit vote. This week it is a different ball game altogether and if you have kept your eye on the proverbial, you will have noticed that EUR/CHF is just a tiny fraction off the 1.200 it was at before the Swiss cut their base rate in January 2015. The painful memory still lingers.
Back to organised chaos and new numbers from the UK Office of National Statistics (ONS) show government borrowing decreased by £3.5bn to £42.6bn in the past financial year. The figures surprised analysts, who had been expecting borrowing to be £2.6bn higher. The Office for Budget Responsibility, which produces official government forecasts, expects the public sector to borrow £37.1bn over the next year – around a quarter of the amount it borrowed at the peak of the financial crisis.
GBP/USD had risen to 1.4376 last week, the highest since June 2016, only to tumble around 400 pips from that high as I type this. The key event for this week is the first release of GDP for Q1 due out on Friday. If it disappoints or misses its mark, as much of the data returned last week did, it is likely to have a further negative impact on GBP.
No matter what happens over the next week, if you need to move GBP to USD, or currencies pegged 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 for the remaining financial year.
GBP/USD movement can be seen on the graph below:
According to the National Audit Office (NAO), Ministers said the Brexit settlement could cost Britain somewhere from £35bn to £39bn, which a report by the government’s financial watchdog labels as "reasonable", however, it suggests "relatively small changes in events" could push the cost of the settlement up. The NAO warns that the UK could pay an extra £3bn in budget contributions as well as £2.9bn more to the European Development Fund. All this amongst what appears to be the most intractable issue on the hard / soft border with Ireland.
Please consider mitigating further downside risk to GBP value and possibly take a view with spot trades in the short term. The longer-term consensus view has moved away from GBP crashing, rather than just dropping, against its usual comparators. None the less, recent highs may be a good time to consider establishing market orders.
GBP/EUR movement can be seen on the graph below:
If you were looking for some excitement in the form of volatility, then you have come to the right currency pair. The big focus for this week will be on Thursday for the ECB April meeting, although it will not release new forecasts and is unlikely to change interest rates. None the less, the press conference by Draghi is likely to influence EUR value. A focus on a potential slowdown may hurt, especially if he says it has immediate implications on monetary policy. Conversely, optimism on current growth rates may boost the EUR, preparing us for the next meeting in June, when the ECB may announce what happens after the current program, of buying EUR 30bn worth of bonds expires in September.
EUR/USD has returned to the level last seen, briefly, at the end of February, today topping out at just over 1.221. Is there more to come? Lets be clear about this, Eurozone economies have been weighed, measured and many have been found wanting at a time when the US keeps surprising all with some positive numbers and a bearish Fed. 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 flutter on baby names.
Have a great week.
Written by Damien Lipman