Is it time to put away the sun hats and dig out the tin hats? Cable (Sterling/Dollar) has hit 11 month lows today on the back of increasing concerns on a ‘No deal’ Brexit.
Last week we had the long awaited interest rate decision from the Bank of England. Market expectations were for a rise of 25 bps to 0.75% and it duly arrived. The only slight surprise was that the vote was unanimous. You would think with rates being next to static for the best part of a decade that there would have been more of a lift for Sterling. After a brief jump above 1.31 the pair was back on the defensive. We moved below the 1.30 handle and since then the downside move has continued.
You can view the movements on Sterling/Dollar on the graph below
Like the changing of the seasons, focus has now returned to ‘Brexit’. Should there be a ‘No deal’ then expectations are for Sterling to weaken by a similar amount to the night of the referendum. That could conceivably see Sterling/Dollar significantly below the 1.20 level. If you have a requirement to purchase USD from GBP over the next 6-9 months it may be prudent to consider a Forward Contract to de-risk your position. Please contact the trading department to discuss rates and margin requirements.
If you’re holding Dollars consider implementing a series of market orders to take advantage of potential further downside risk to Sterling. I would caveat though that to sell Dollars into Sterling at present is the best its been in almost a year. Consider covering off some on SPOT and then work in some market orders. Please contact the trading department to discuss technical levels and realistic levels to achieve in your timeframe.
This week there is little data of note out from the UK other than preliminary GDP (YoY) and (QoQ) (Q2). I wouldn’t expect any great showing on these numbers so Sterling is likely to remain flat if not come off further.
We have moved under the 1.12 level on GBP/EUR.
You can view the movements on the graph below –
INSERT GBP/EUR GRAPH
The dollar is in the ascendency and has pushed EUR/USD down to the mid-1.15s so the Euro is under pressure too hence the move on Sterling/Euro being less severe than through Sterling/Dollar. GBP/EUR has been fairly range bound for a number of months. If you are holding Euro’s I would suggest covering off some into GBP as we’re approaching the low of the range. Please contact the trading department for a rate of exchange.
Politics and Brexit are likely to be the main drivers over the summer months for Sterling so any commentary from officials will impact Sterling. Please make sure you have discussed a strategy with our trading team to mitigate your risk over the next few months,
If you have any questions please get in touch with me directly.
Have a fantastic week
Written by Liam Alexander