Sterling has a lustre like the manicured lawns of Augusta, Georgia at present. Will Sterling continue to climb the leaderboard in Q2 or are we destined to end up in a bunker frantically trying to hack our way out?

Sterling/Dollar

Sterling/Dollar has a slight upside bias at present. We’re starting to look toppish at current levels though after the recent move higher. We had the NFP (Non-Farm Payroll) figures released on Friday and these disappointed to the downside. Expectations were for a print of 193k although the actual number came in at 103K. Cable (GBP/USD) edged higher on the back of the release although not in emphatic fashion. Yes, the figure was disappointing for March although the longer term trend of strong growth in the US remains.

If you have a requirement to purchase USD from Sterling consider covering off a portion of your exposure on a SPOT basis at current levels. Take advantage of the recent moves in your favour. Please contact the trading department for a rate of exchange.

You can view the recent movements on Cable (Sterling/Dollar) on the graph below –

GBP/USD - 1 WEEK

Sterling/Dollar is in a range at present and we’ll either break back below 1.40 and gradually push lower or we’ll break through 1.45. I think the UK and Sterling has weathered the majority of the Brexit ‘storm’ so far rather well. The downside risks may have been overplayed. We will have moves to the downside to manage although on an annual basis I expect Cable (GBP/USD) to finish trading around 1.45/1.46. If you can achieve over 1.40 as a price point to work from I would lock this in now to take some risk off the table. We can then work out a strategy with you utilising a mix of SPOT, Forward Contracts and Market Orders to try and achieve a higher average FX rate for the year. Please feel free to get in touch directly to discuss.

Whilst the UK has its part to play the US will have a large say in the direction the Dollar takes. Whilst consumer confidence in the US is at a 14 year high, factory orders are rising, employment figures and growth are strong and I expect the Federal Reserve to raise rates in May, there are some headwinds to dollar strength. Geo politics being the main one. Whilst the Dollar remains a global safe haven a continuing protectionist outlook from the US may give rise to a sell off in the dollar. Please make sure you have a strategy in place to mitigate currency risk. Doing nothing is speculating. This year will continue to be volatile and the FX landscape can shift extremely quickly.

Sterling/Euro

We’re now trading towards the top of the recent range. It wasn’t long ago we were in the 1.11’s. If you can achieve over 1.14 purchasing EUR from GBP I would consider taking advantage of the recent price movement. Please contact the trading department to lock in a SPOT trade.

You can view the recent moves in GBP/EUR on the graph below –

GBP/EUR - 1 Week

 

The Euro has been under pressure with EUR/USD coming off highs above 1.24 to trade in the 1.22s. Growth in the Eurozone has slowed markedly after the faster than expected pace of growth last year. Inflation remains well below the ECB (European Central Banks) target of 2%. In addition, there will be a more pronounced divergence in interest rates this year with the Bank of England and the Federal Reserve likely to raise rates. This should translate to a higher rate for both Sterling and the US Dollar against the Euro.

If you have a requirement to purchase Euros and have projections on your FX exposure for the remainder of 2018 please get in touch and we can put a plan in place to take advantage of moves in your favour.

Selling Euro’s? Decision time. Whilst we aren’t trading in the 1.11’s anymore rates are still competitive. My view is cover off some of your exposure now. There will be some dips with Brexit related news likely to weigh on Sterling from time to time so there will be opportunities to ‘average up’ your FX rate at certain times.

We have Mario Draghi, the ECB President, speaking on Wednesday. He will likely shape the direction of the Euro short term so think about covering off some of your requirements prior to this. Rounding off the week in terms of market events is the Bank of England Governor, Mark Carney, speaking on Thursday. Should there be any hawkish language surrounding rates we should see Sterling benefit from this.

If you have any questions or would like to discuss a specific topic in more detail please feel free to get in touch.

Have a fantastic week

Written by Liam Alexander