he world looks on incredulously as Kim Jong Un launches another missile test, the recently inaugurated President of France takes post and selects Edouard Philippe as his Prime Minister and Theresa May dropped two points in election polls because for some utterly inexplicable reason she chose to bring up the possibility of removing the ban on fox hunting. No matter your enthusiasm or lack of it, I am as baffled as Sean Spicer after Trump tells now former FBI Chief Comey, “You’re fired!”, on why it needed to be discussed right now. Sadly, I cannot hide in the bushes even if I WannaCry, just like many of the IT crowd. Hold onto your hats folks… even by last week’s standards, this week could be a wild ride!
The Times has reported European firms already turning their backs on British suppliers. Almost 50% of Eurozone businesses with British suppliers are already trying to find replacements elsewhere within the EU. After surveying more than 2,000 supply chain managers, the Chartered Institute of Procurement and Supply reported that the "separation from Europe is already well under way". Around 28% of firms said they intend to source all of their supply chain from within the remaining EU.
There are also risk heavy times ahead for GBP value as we continue to enjoy relative stability at current levels, for another couple of weeks before we lose momentum. The realisation that an increase of real inflation against a much lower, flatter wage increase means that, ultimately, in the UK we are all going to have less to spend on things that are becoming increasingly expensive. Earnings growth for Q1, out on Wednesday, is expected to have slowed to 2.2% excluding bonuses. A further rise in CPI, combined with the slowing wage growth, will add to the negative impact on real wages. We could see GBP softer this week as a result but it’s important to note that losses may be limited as political developments remains the main mover for now. Downside resistance stands at around 1.1735 against the Euro.
Anyone selling GBP may wish to seriously consider fixing forward rates now, in anticipation of the decrease in value due in the relatively near future. Please contact us to discuss this as soon as you can because time may well be running out for you.
The following graph depicts last week’s GBP/EUR moves:
GBP/EUR 1 Week
Cable lost almost 100 points last week, as the pair closed at 1.2877. The Bank of England held interest rates at 0.25% but the pessimistic rate statement sent the GBP lower. In the US, President Trump’s firing of FBI Director James Comey set off a political meltdown. The controversial move worried markets that the Administration may have to delay plans for fiscal spending and tax reform. USD lost ground on the news but recovered quickly. On the fundamental side, US CPI and retail sales disappointed and missed the forecasts.
Downside resistance stands at around 1.2760 against the Dollar now. This week’s key events are UK CPI and Retail Sales and Average Earnings Index all on Tuesday 16th May. The BoE is forecasting a lower standard of living for Britons due to Brexit, and weaker data could send the pound lower. The US economy remains solid, and the Fed is expected to raise rates two more times in 2017, although there is some doubt now about a June hike.
Once again, Cable is tough to call now but if you are selling USD back to GBP we suggest it may be worthwhile covering off the risk with a sizeable portion on a SPOT basis. Please contact me for a rate of exchange, as we keep saying, doing nothing is speculating.
The following graph depicts last week’s GBP/USD moves:
GBP/USD 1 Week
Germany’s high trade surplus means that money is flowing into the euro area and German GDP met expectations and reached 0.6%, a robust level. The trade balance will be announced on Tuesday. Back in February, trade stood at 19.2 billion. A similar figure is on the cards now at 18.8 billion. When there is no excessive speculation, this influx pushes the common currency higher. USD previously enjoyed hopes for fiscal stimulus from the Trump administration and the upbeat sentiment from the Federal Reserve also underpinned that. Both have changed with Trump’s failure to pass any health-care reform and the “dovish hike” from the Fed. So, fewer people now expect EUR/USD parity, including the team here at Aston.
The following graph depicts last week’s EUR/USD moves:
EUR/USD 1 Week
It only remains for us to wish you well for the coming week and to remind you that no one has a crystal ball. Anyone that tells you they can predict the future with any degree of absolute certainty is lying. However, some can offer you educated opinion and attempt to provide some thoughtful, common sense guidance. Not trading your currency is as much of a risk and a gamble as trading. The markets will move, volatility and relative values will vary but whatever your foreign currency exchange and international payment needs are, you can rely on the team here at Aston Currency. Please do not hesitate to get in touch with us, we look forward to hearing from you.
Written by Damien Lipman