Last week there was a positive feeling on a ‘good’ deal on Brexit. Now there isn’t. Sterling was rising like a salmon in the River Tweed. Now it isn’t. What will this week have in store for us?
You can view the recent price movements on Sterling/Euro on the graph below –
INSERT GBP/EUR GRAPH
The summer is drawing to a close and the UK Parliament is back in session from tomorrow. With an informal date of October (although this could now be pushed to November) for an agreement on the Brexit divorce deal between the UK and EU we should see ‘Brexit’ negotiations increase in intensity. At present, we still look miles apart on a framework with specific actions that will suit both sides. Could it possibly be an 11th hour cobbled together agreement in March? There is still that possibility. There is still the possibility of a ‘No deal’. Should we have badly arranged deal or a ‘No deal’ then like a 59.8% cask strength whisky, it’s going to pack one hell of a punch to Sterling.
To this end, please start to consider your Q4’18 and Q1’19 position. Please get in touch with me directly to discuss rates and margin requirements for Forward contracts on a 3/6/9 month basis.
Sterling is currently trading on headlines and comments from various officials involved in the negotiations. However, we have had poor manufacturing data out this morning with a print in the (Aug) PMI’s of 52.8 against expectations of 53.8.
Could we see a further erosion in Sterling in the coming months? Absolutely. However, if you are selling EUR/GBP I would look to take advantage of the recent downside movements. We had largely been trading in a range of 1.11 to the downside with a toppish level of around 1.14. We have now broken through 1.11 and we may fall further. Please consider locking in some of these gains. Feel free to contact the trading department for a rate of exchange.
Please view the recent movements on Cable (GBP/USD) on the graph below –
Is Sterling undervalued or overvalued at present? History would tell us it’s undervalued. Whilst history plays a part in shaping the future, there is no blueprint for Brexit. Therefore, how do you accurately value Sterling in the present? Largely, a lot of the downside move on GBP/USD has been driven through US Dollar strength. Might Sterling over the next few months prove more of a driver? The longer uncertainty continues around the details on any Brexit deal then I think Sterling is going to come under further and increased pressure. Might these be significant moves? I think we’ll be looking at percentage points on these moves.
If you have a requirement to purchase USD from GBP I would consider locking in some on a SPOT basis at present. Do also consider locking in a portion of your exposure on a Forward Contract to de-risk your position. I think Sterling still has room to fall further. This week we have inflation report hearings out of the UK and the NFP figure (Non-Farm payrolls) that are the main releases in a relatively quiet data week.
Selling US Dollars? If you can achieve under 1.30 the figure lock in a sizeable portion at these levels on a SPOT basis. This will average up your annual FX rate significantly. I would then discuss with our trading department staggering ‘take profit orders’ at various levels to the downside. Please discuss appropriate technical levels to aim for this week and over the coming months.
Have a fantastic week and should you have any questions please get in touch with me directly.
Written by Liam Alexander