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ACM Update Tuesday 20th October 2020

Another week of uncertainty looms. Brexit negotiations and the myriad of restrictions and tiers across the United Kingdom will provide headaches for Sterling.

Wales are in a “firebreak” lockdown, Northern Ireland are in lockdown in all but name, Scotland will no doubt implement some ridiculous named lockdown in the coming days and England are in various tiers of lockdown. We are definitely not in a lockdown though. That is clear. Any semblance of cohesion and clarity of thought flew out the window a long time ago. Expect the UK recovery to stall in Q4.

Sterling is largely beholden to news flow around the severity of coronavirus restrictions and Brexit negotiations. A Brexit deal, I believe, will be cobbled together before the end of the transition period 31st Dec. With the pandemic causing economic chaos across the UK and the EU it is in no-ones interest to have a no-deal outcome.  Some form of free trade agreement will be reached. How that will read will be the interesting part.

You can view the recent movements in Sterling/Euro in the graph below –

As you can see Sterling is largely jostling with 1.10 the figure. There is no clear break in either direction forthcoming and I expect range bound trading to continue. With further restrictions expected in the UK, coupled with the UK Brexit negotiating position, I see a slight bias to the downside. However, next month, I expect the Bank of England to forgo negative rates and focus on quantitative easing to support the economy further. This should give support to Sterling. Short-term though I expect Sterling to trade sideways if not slightly lower. There is no real data of note released this week that is likely to impact the direction and dynamics of GBP/EUR.

If you have a requirement to purchase or sell EUR please contact a member of the trading department and they can discuss your specific requirements with you.

GBP/EUR may look wildly different by end of year. Please make sure you have a strategy in place to manage some of the expected turbulence.

In terms of Sterling/Dollar, we are fighting with 1.30 the figure.

You can view the recent movements in Cable below –

Dollar headwinds will be around stimulus measures and of course the US election. Today is deadline day to pass a US stimulus bill before the election. Expect it to go down to the wire. Should the democrats and the republicans not meet in the middle on additional spending around the $2trillion mark then expect the Dollar to be sold off. If you have an upcoming requirement on Sterling/dollar please get in touch with the team today to implement take profit orders. There may be some volatility around any announcement.

Governments and central banks are dealing with what is immediately in front of them from an economy perspective at present. Global economies are fluctuating wildly at present and therefore currencies are subject to even greater movements. Please get in touch with the team at Aston and we can look to assist you with your FX hedging through to the end of the2020. Get in touch with the trading department and they will help put a plan in place.

If you have any questions please do let me know.

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.

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