Make no mistake, last week was nothing if not eventful both economically and politically. The thankfully averted tragedy in London was a shock for all and a poignant reminder of the hard work undertaken by our security services. At the same time we had yet another shot from the “Rocket Man” in North Korea, showing that politics really can upstage economics.
GBP continued to make very significant gains on USD up beyond 1.35 and a little more on EUR. With improvements in both the US and Europe, despite massive weather systems and Kim Jung Un’s best efforts elsewhere, EUR/USD has remained relatively steady.
Inflation in the UK reported as rising by more than expected to 2.9% in August, up 0.3% from the previous month and BoE Governor Carney is on record now as being more hawkish with an interest rate hike likely “in the coming months”. This immediately surged GBP value up, up and away to 1.33. Even the sluggish pace of wage rises at 2.1% y/y and the rally from USD elsewhere, did not halt cable’s rise.
Please consider taking advantage of current GBP value if you are buying USD and get in touch with us to discuss fixing forward rates. Please contact the trading team to implement these. We have seen what can happen when the markets get over enthused by BoE hawkishness.
UK core CPI figures and the interest rate announcement holding steady pushed GBP beyond the 1.11 all the way to an apparently steady hold now at around 1.133. Last week the vote in Parliament backed the EU Withdrawal Bill which is to convert EU legislation into UK law in preparation for the exit in 2019. The realisation that a cliff edge Brexit scenario is already priced in to a great degree will cause traders to exit their bearish Sterling positions.
UK retail sales on Wednesday this week will be in focus as markets look to see how higher inflation effected consumer spending in August. If you are buying EUR from GBP this week you may wish to take advantage of the current value before announcements on Wednesday and Thursday. Please get in touch with us to mitigate your risk exposure. The longer term view is that GBP may yet still have far to fall before the year end, despite the corrections of major banks away from parity.
German elections are the only foreseeable major event looking likely to bring uncertainty to the EUR for now. EUR/USD has started the week in a stable manner, around 1.1940. Resistance is clear at the round number of 1.20. Further support is at 1.1870, a level the pair fell to last week.
EUR initially ignored Draghi’s complaints about the exchange rate. EUR/USD reached new highs, flirting with 1.21. However, the momentum came out of the move, aided by a recovery of the US dollar. European data continued its upbeat trend, with employment rising by 0.4%, better than expected. However, the recovery of the USD does not necessarily spell doom for the EUR. A combination of political and geopolitical stability boosted USD value but after failing to push down EUR value last week, Mario Draghi is likely to be more cheerful now.
The big event of the week is the decision of the Federal Reserve; Yellen and her colleagues are expected to begin reducing the Fed’s balance sheet, and the focus will be on the plans for the next rate hikes. While the economic situation in Europe continues looking good, things in the US have improved as well. This includes a better political environment, hopes for a tax reform and with renewed optimism about a rate hike from the Fed, there is little to choose between them this week.
Not trading your currency is still a risk. The markets will move, volatility and relative values will vary but whatever your foreign currency exchange and international payment needs, you can rely on the team here at Aston Currency Management. Please do not hesitate to get in touch with us, we look forward to hearing from you. Now, if you will excuse me, I am going back to the paddle shop again, just in case! Have a great week.
Written by Damien Lipman