Mrs May fosters “confidence” and promises the supply of £1bn to Northern Ireland and the DUP’s Arlene and finalises a deal to form a government: GBP sees a slight rally. I am finding it hard not to write about Brexit as the single most important factor actually effecting GBP value as the media focus is unrelenting and thus the tail continues to wag the dog. The summary is that the Euro will be the strongest player this week with GBP still having little to keep it up except sentiment, exemplified by the Lloyds Bank Survey stating business confidence in the UK has jumped to an 18-month high of 24%. USD is the wild card for the week and for the midterm. USD liquidity has been relatively loose and now Fed rate rises may start to drain it, driving up borrowing costs and lifting the lid on debt service costs and masked risk.
GBP dropped almost 2 cents during last week, before rebounding and closing the week down 70 points closing at the 1.27 line. The drop was likely caused by Governor of the Bank of England, Mark Carney’s warning against a UK interest rate increase. Chief Economist Andrew Haldane contradicted Carney, supporting a rate increase and the currency pair closed at 1.2776. Today this dropped in early trading and but with confirmation from the DUP, Prime Minister May might yet forge a better week.
This week the BoE will produce the Financial Stability Report and any unexpected risks could force GBP lower. At the end of the week the UK will announce its current account deficit and expectations exist for it to rise to GBP16.5bn in Q1 whilst there is little from GDP figures, forecast at 0.2%, to bolster GBP value against USD.
If you are buying GBP you may wish to set a market order to take advantage of moves in your favour.
If you are planning on buying USD you may want to fix a forward contract to guarantee the rate of exchange later in the year as Sterling/Dollar may move lower.
The following graph depicts last week’s GBP/USD moves:
This is a big week for CPI numbers coming out of Europe, building to a crescendo with the culmination of all the Euro-zone figures coming on Friday, when we will also get core inflation (disappointing many in May by falling to 0.9%). An uptick to 1% is predicted. Headline inflation stood at 1.4% and here, a slide to 1.3% is projected.
The general consensus is that the Euro will continue to be the stronger of the pair in terms of relative performance over the coming week. There is little until the end of this week to cause shocks. As we move towards July a number of market positions will be closed and liquidity will begin to decrease. Taking advantage of a spot rate now for Euro buyers could help reduce exposure to unforeseen negative moves. Please do not hesitate to contact any of the team to discuss your needs.
The following graph depicts last week’s GBP/EUR moves:
With USD having regained some losses last week we now anticipate ECB plans for tapering quantative easing to be kept under wraps, at least until the Germans have had their elections in September. This will not do the Euro any favours against the Dollar, which itself is buoyed by the continued hawkish fall out of the US interest rate hike. If Mario Draghi expresses worries about inflation, it will help keep the euro in check. If he focuses on strong growth, the Euro could rise. Timing your transactions is key. Please contact me or a member of the trading team to discuss your upcoming requirements in detail.
The following graph depicts last week’s EUR/USD moves:
Not trading your currency is a risk. 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 Management. Please do not hesitate to get in touch with us, we look forward to hearing from you.
Written by Damien Lipman