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ACM Update Monday 11th January 2021

A storming of the Capitol building in Washington, Biden’s victory eventually certified, lockdown part three in the UK, Trump banned from social media and a possible 11th hour impeachment? What a start to the first trading week of 2021.

With a week like last week, where do we possibly start. Monday seems the logical place to do so, which saw the largely expected lockdown part three hit the UK, with the chancellor then having to announce a £4.6bn support package to run alongside. Sterling took a hit as a result against most major currencies, as seen from the chart versus the Euro below.

GBP-EUR movements over the last week

As mentioned by Liam in last week’s update, there will be opportunities for GBP-EUR buyers over the coming weeks, but these may well be short-lived. Therefore, getting in touch with our dealing team in advance to make sure we are aware of your requirements, is imperative to allow us to strike whilst the iron is hot. Due to current levels of volatility, limit orders have been incredibly productive recently in allowing clients to take advantage of short-lived spikes in exchange rates.

With a financial stimulus package having been signed off in the US, the dollar continued to make gains against the other majors, despite the events of the week. It says a lot about the focus of the markets at the moment, that what occurred in Washington D.C. on Wednesday didn’t impact cable very much, if at all. That said, it dominated the news enough that Thursday’s Federal Reserve meeting (whilst not telling us much we didn’t know), went largely unnoticed. The below chart shows recent GBP-USD movements.

GBP-USD has been trending negatively of late, pulling back from recent highs

Friday saw the monthly Non-Farm Payrolls (NFP) data released, with expectations of a still weak increase of 71,000jobs dashed by a drop of 140,000. The initial knee-jerk reaction for the Dollar was to fall back, followed by the poor figure leading to more hopes of stimulus for the US economy in the short term. The dollar continues to recover from the 30 month plus lows seen against the Euro and GBP over recent weeks. On the Aston trading team, we still believe that if you are able to achieve prices north of 1.35 on GBP-USD it is still a great opportunity for securing a good proportion of your FX exposure for Q1, establishing a good position for the rest of the year.

We also saw the World Bank issue its growth forecast this week of 4% growth globally in 2021 (to follow the 4.3% contraction seen in 2020). However, there was a warning that rising infections and delayed vaccine rollouts have the potential to limit growth to 1.6% instead in the same period. China is expected to see growth of 7.9%, with the Eurozone and US forecast to both expand by circa 3.5%.

Away from economic data, we saw Trump banned from Twitter & Facebook, with continued rumblings about a further impeachment trial in the twilight of his presidency. In theory this should not impact the dollar too much at such a late stage in his “reign”, but stranger things have happened, literally. After the Georgia run-off, Joe Biden and the Democrats now have control over the House, the Senate and the White House in what has been a huge change in American politics. This will no doubt help the strength of the dollar in the medium to longer term, with decision-making and legislation now a far more straightforward process.

Back in the UK, Matt Hancock has reassured the public that the Government are on track with their 200,000 vaccine injections per day target, with every adult to be offered the jab by the autumn still the pledge.

Onto the coming week which being the middle week of the month is usually light on economic data but let’s be honest data is not really what is driving markets at the moment. As the pandemic continues to evolve the focus is more on support packages, lockdowns and the different phases of recovery. We have speeches from Christine Lagarde of the ECB on Monday afternoon and Wednesday first thing, which recently haven’t been viewed favourably by the markets, so there is certainly potential for Euro movement there, even prior to Fed Chairman Jerome Powell speaking on Thursday evening (all times indicated here are GMT).

Friday morning is likely to see the inevitable confirmation that the UK economy is going to be headed for a double dip recession, although this shouldn’t really be any sort of shock to the markets unless the numbers are significantly worse than the -4.6% expected.

So in summary, still incredibly volatile times out there and very difficult to call on upcoming movements. If you have an upcoming transaction or even want to discuss the potential of one, my suggestion would be to reach out to the dealing team and establish a strategy. As mentioned, getting your approach right in the first quarter of Q1 will be key for the rest of the year.

Stay safe and look out for each other.

written by

David Comber

David Comber is a Senior FX Trader at Aston Currency Management