ACM UPDATE MONDAY 10TH JUNE 2019

The Conservative Party leadership contest is becoming like an episode of the TV show the Apprentice. Whilst not riveting viewing it does at least distract us from all things Brexit for a short period of time.                                                                                                                                                                                                      

Sterling will be open to downside risk during the leadership contest. With uncertainty comes volatility and increased risk for the Pound. After nominations close MP’s will vote in a series of ballots. The first is on Thursday 13th June with the new leader announced on the week commencing 22nd July. Dependent on whom is elected this may give Sterling a shot in the arm or more than likely the reaction may be muted.

You can view the recent movements on Sterling/Dollar (Cable) on the graph below –

GBPUSD 10062019.png

Cable (GBP/USD) pushed slightly higher in trading towards the end of last week. This was due in part to a sell off in the US Dollar. We had NFP (Non-Farm Payrolls) released on Friday that disappointed to the downside with a print of +75K against a consensus of +185K. Wage growth (MoM) also disappointed with a print of 0.2 against expectations of 0.3% and the (YoY) figures came in at 3.1% against expectations of 3.2%. Will the sell off in the dollar continue? With the second set of poor figures in a matter of months there is now the case for the Fed to take action with a rate cut. However, as trade tensions and trade wars continue this may limit any fall in the US Dollar as investors will flock to the US Dollar as a safe haven.

We have had a raft of poor figures out of the UK this morning with Manufacturing Production (MoM) and (YoY) (Apr) and Industrial Production (MoM) and (YoY) (Apr) all disappointing to the downside. Sterling/Dollar has given up some of the gains made overnight in the Asian session. I view Sterling/Dollar as neutral with a slight bias to the downside in upcoming trade. If you have a requirement to sell USD/GBP I would consider firstly covering off some of your requirements on a SPOT basis and then implement take profit orders to the downside at staggered levels to take advantage of any intraday movements in your favour. Please contact the trading department to discuss technical levels and positions.

If you need to purchase USD from Sterling? It really depends on your timeline. If you can hold out for now then do so. You may want to implement some market orders so if we do see a further sell off in the Dollar you can take advantage of any spikes in the market.  We have some data out of the US this week that may have some bearing on the direction of the dollar. We have inflation data out on Wednesday in the form of CPI (ex Food and Energy) (MoM) and (YoY) May with prints of 0.2% and 2.1% expected respectively. Friday we have Retail Sales out of the US rounding off the week.

Sterling/Euro

If you are holding EUR consider taking advantage of the recent moves in GBP/EUR. I would look at covering off a sizeable portion of your exposure on a SPOT basis. This gives you a great price point to work from. Please contact the trading department for a rate of exchange. There may well be an opportunity for a further push lower although do take some risk off the table at current levels. We can then look to average up your exchange rate through a series of take profit orders at the appropriate levels.

You can view the movements on Sterling/Euro on the graph below –

GBPEUR 10062019.png

Tomorrow we have the ILO Unemployment rate (3M) (Apr) released with expectations for a print of 3.9% against a previous 3.8%. We also have Average Earnings Excluding Bonus (3Mo/Yr) (Apr) released tomorrow from the UK. From the European side, we have the ECB president, Mario Draghi speaking on Wednesday. He will keep his accommodative monetary policy in place with interest rates in negative territory to help support growth and cut the costs of the Governments of Greece/Italy when it comes to refinancing their maturing debts. With growth and inflation in the Eurozone taking a hit again last month the ECB will be ready to adjust interest rates even lower if global headwinds continue to impact the Eurozone.

With the ‘summer’ months around the corner and the UK going through dramatic political change then Sterling is going to be open to larger moves than usual.

Please make sure you have spoken with a member of the Aston team to put a plan in place to mitigate your currency risk.

Have a fantastic week

Written by Liam Alexander

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.