Is it coming home? It’s coming home. It’s coming home. No, not the World Cup. A ‘soft’ Brexit. Potentially. Maybe. Maybe not. Let’s go with the debut album from those Manchester rascals Oasis and say ‘Definitely Maybe’. 

David Davis, the UK’s Brexit minister, resigned. Sterling initially came off on the news although is now up 0.4% on Cable (GBP/USD) due to Theresa May’s position being strengthened, for now. This of course could dramatically change in the coming hours. Where do we go now? Is Sterling due a rally higher or will it come crashing down to earth? 

You can view the recent movements on Cable (Sterling/Dollar) and GBP/EUR on the graphs below   

GBP/USD - 1 Week

GBP/EUR - 1 Week

Most would have thought Sterling would have plummeted on the news. Quite the reverse. Sterling is up to almost the highest level in a month against the US Dollar. Granted, this is largely down to the Dollar being hammered like Panama routinely does at football. President Trump and the trade war rhetoric is weighing on USD. This can be viewed through EUR/USD pushing higher too. From a Sterling perspective, most market participants are pricing in an August interest rate rise to 0.75% so this is giving GBP a solid base to work from. 

Indeed, Sterling/Euro has pushed back above 1.13 the figure in recent trade. 1.14 has been toppish over the last few months. If you have a EUR requirement from GBP it may be worthwhile implementing a market order at 1.1350 and then 1.14 to execute on a SPOT basis. Please contact the trading department to discuss.    

If you hold EUR and need to move back into GBP I would consider locking in a sizeable portion of your exposure at current levels. Yes, it might go lower although if you can trade under 1.15 I consider this a good level to take advantage of. Please contact the trading department for a rate of exchange.

FX markets have been fairly range bound over the past week with limited price movements. Is this set to change? Politics rather than any economic fundamentals will be the main driver for Sterling in the coming weeks although as much of the world does now, Sterling will play second fiddle to what the Dollar does and that is largely determined by the man in the White House and the ongoing trade war. 

This week we have the ECB President, Mario Draghi, speaking. From the UK we have GDP (MoM) (May) released and the Bank of England Governor, Mark Carney speaking. Any further clues around interest rates will likely impact the short-term direction of Sterling. These speeches and releases largely round up the main events of this week on the economic calendar. 

If you would like to discuss your individual requirements with me please get in touch directly.

I have a funny feeling we will be paying more attention to the travails of the UK Government this week than anything else. Apart from the football.

Have a fantastic week

Written by Liam Alexander