Is this the week we finally get some clarity around Brexit? I’d be amazed.
Will Theresa May win Tuesday’s meaningful commons vote? Unlikely. After that, there will be a vote on leaving without a deal. Once that is concluded/fails, there’ll be a vote on delaying the exit date. Clear as mud I’m sure you’ll agree. I’d expect a delay/extension to the exit date. This can then be put to the EU. However, it doesn’t necessarily mean the EU has to accept our offer. Whilst I’m sure they will, if they didn’t, that would be the final cherry on top of this fiasco.
What is all this uncertainty doing to Sterling? It is shifting GBP out of some recent ranges. Cable (Sterling/Dollar) is currently trading around the mid of the past month’s range. We hit the dizzy heights of 1.3339 whilst the low has been 1.2781. The dollar has had some recent strength as investors look to it as a safe haven with global growth concerns back on the table. Couple this with the never ending Brexit chaos and Sterling/Dollar may trade back to lower levels.
You can view the recent price movements on Sterling/Dollar in the graph below –
Is the Dollar particularly attractive at present? Not really. It is the case of the ugly parade between the Dollar, Euro and Sterling. US employment growth was pretty much non-existent in February although the employment rate was back under 4% and average hourly earnings were up. This makes the Dollar slightly less ugly than going into Sterling with all the Brexit chaos at present. In addition, the Euro has been hit with EUR/USD trading around the 1.1250 mark, down to some of its lowest levels since the middle of 2017. On Thursday last week the ECB (European Central Bank) downgraded the growth outlook. I’d expect the dollar to make some further gains against Sterling this week.
If you are holding USD I would take advantage of some of the recent moves and convert a percentage on a SPOT basis against GBP and EUR if you have requirements. Please contact the trading department for a rate of exchange. In addition, with a week of UK politics likely to take up most of the headlines Sterling may find itself under pressure. Consider utilising take profit orders on USD/GBP. Please contact the trading department to discuss technical levels.
If you have a requirement to purchase US Dollars from Sterling by the end of the March you need to consider some worse case scenarios. If there is a disorderly Brexit then Cable (GBP/USD) could fall to 1.20 the figure. Whilst I think that is unlikely it is still a possibility. Please make sure you have had a discussion with me or the trading department to put a plan in place to mitigate some of this risk.
Brexit will of course take centre stage (again) although I think most people have forgotten there is the small matter of the ‘Spring Statement’ and mini-budget on Wednesday. Whilst it isn’t as significant as the main budget, now scheduled in November, it will still be keenly watched. Across the pond we have Retail Sales (MoM) (Jan) out of the US this afternoon followed by inflation data in the form of CPI (YoY) (Feb) on Wednesday.
Over the past month we have traded between a little over 1.13 to a little over 1.17 on GBP/EUR. With reports over the weekend focusing on the UK parliamentary votes Sterling has been sold off. We are down around 0.5% against EUR in today’s trading. Will people start to get out of Sterling positions now the end of March is in view? Quite possibly. Sterling may be in for some short-term pain this week so if you are holding EUR consider some market orders back to GBP to take advantage of any intraday moves in your favour. Please contact the trading department to discuss levels to aim for.
You can view the recent movements on Sterling/Euro over the past week on the graph below –
I expect a slight retracement on Sterling/Euro as I think we’re going to struggle to hold above 1.15 the figure this week. With political indecision and general reluctance to hold Sterling positions going into the end of March I think we’ll see Sterling move to the downside. If you have a requirement to purchase EUR from GBP then please consider locking in some of your exposure at current levels on a SPOT basis and discuss Forward Contracts with our trading department. This will allow you to mitigate some of your currency risk in the run up to the end of this month and the inevitable uncertainty that the 29th March will bring.
In terms of data around Sterling and Euro this week it is relatively light. We have some manufacturing data out of the UK on Tuesday in addition to GDP (MoM) (Jan) that is expected to print at 0.2%. On Thursday we have inflation data out of Germany with Eurozone inflation data rounding off the week on Friday.
If you have any questions around your currency requirements please get in touch directly.
Have a fantastic week.
Written by Liam Alexander