Sterling/Euro has broken through 1.10. The move has happened a few weeks ahead of my forecast of the end of August. Where now for GBP/EUR? 1.05? Parity? Below parity? It will be as interesting to see as Jacob Rees ‘Moggster’ Mogg as PM.
You can view the movements on Sterling/Euro last week on the graph below –
EUR/USD is battling with the 1.18 level. I think it is a matter of time before we push through the psychological level of 1.20. I don’t see anything that will hold back the Euro at present. Should we see the move in EUR/USD this is going to impact Sterling/Euro to the downside. I have been Sterling negative for most of this year and I don’t see anything on the horizon to alter this view. We have inflation data out of the UK tomorrow in the form of CPI (YoY) (Jul). Consensus estimate is for a print of 2.7% against the previous figure of 2.6%. I expect this figure to come in on expectations tomorrow. We will see a gradual run up in inflation to the 3% mark this year. Wage growth, or the lack of it, will continue to be a thorn in the side for people. With inflation rising this is going to have consumers reining in their spending. Alarm bells are already starting to ring on borrowing levels and credit. With ‘Brexit’ only just beginning in earnest then Sterling is going to suffer. I think we can wave goodbye to any talk of an interest rate rise in 2017 now.
So, what should you do if you’re a buyer of Euros from Sterling? We can all sit here and say GBP/EUR should be trading higher. It isn’t. The giddy heights of 1.18 seem a distant memory. 1.40 on Sterling/Euro seems like a previous century. We have seen a slide where we are now discussing parity as a distinct possibility. Can you afford to trade at 1:1? Has parity ever happened before? No. I have never thought parity was a realistic level. However, I think the case for parity is now a salient one.
If you have requirements to purchase Euro’s please contact the Trading department or speak with me directly. We will put a strategy in place for you over the coming months to de-risk your position. Could we see some sharp upside intraday movements on the back of positive data releases this week for Sterling? Possibly. It may be worthwhile implementing a market order to take advantage of spikes higher. Should these upside movements occur I don’t think they’ll hang around for too long. If you have a market order in place with us your trade will be executed automatically for you should your rate be achieved. Please contact myself or the Trading department to discuss appropriate levels to aim for.
Are you holding Euro’s at present? Take advantage of the current levels on a SPOT basis or lock in a sizeable portion on a 3 month forward back to Sterling. I do think the rate will move further in your favour although take some risk off the table and lock in a sizeable amount now. Please contact the Trading department to discuss. There are quite a few data releases that may move the Euro this week. We have preliminary GDP (QoQ) and (YoY) (Q2) released with inflation data out in the form of CPI (YoY) (Jul). We also have the ECB Monetary Policy Meeting Accounts release.
We are hovering around 1.30 the figure without any clear direction at present. Last week Sterling/Dollar traded in its tightest range for three years.
You can view the movements on Cable (GBP/USD) on the graph below –
We have more data releases this week so I expect some volatility to return. traders and investors should be coming back to the party after a few weeks away. This week we have Retail Sales (MoM) (Jul) out of the US in addition to the FOMC (Federal Open Market Committee) minutes on Wednesday evening (UK time). With Geopolitical tensions showing no signs of abating with North Korea still being, well, North Korea, the dollar is likely to fluctuate. Sterling has come off the highs of around 1.32 in recent weeks and I would expect a move back to the 1.28s in upcoming trade. If you are a USD buyer from Sterling do consider locking in some of your exposure at current levels. Please contact me or the Trading department for a rate of exchange.
If you hold USD consider market orders to the downside to take advantage of any Sterling weakness.
September is starting to come into focus and the lull of August will soon be a distant memory. Make sure you have discussed a strategy for the remainder of the year with us. Movements will likely be a lot more severe from September through to the end of the year.
Any questions please do let me know.
Have a fantastic week.
Written by Liam Alexander