ACM Update Monday 11th May 2020

We have a plan. Sort of. But not really. I am hoping that the document published today will have some real detail on the UK’s plan to come out of ‘lockdown’. If not, cue more confusion for UK PLC.

The ‘sketch of the plan’ that was aired last night gives a little nudge in opening the door to potentially getting the economy going, some children back to school, and people moving outside more. This door can quite easily be closed shut again if we have another spike in coronavirus data/cases/deaths. So, the only clarity we have is that we still don’t have clarity. Let’s hope we have a clearer road map shortly for the sake of everyone otherwise we’ll be going round a roundabout for quite a while.

Uncertainty is of course never the markets friend. Well, we’ve got a whole year of it coming up and that’s without throwing Brexit into the ring. Data from April has now laid bare the implications that coronavirusis is having on global markets. In the US, the unemployment rate now stands at 14.7% after being at a 50 year low of 3.5% just two months ago. That’s a loss of over 20M jobs and it is expected to get worse. US retail sales (MoM) (Apr) are released this week and a print of -10% is the consensus. The UK numbers don’t make light reading either. This week we have GDP data out of the UK with (MoM) (Mar) expected to print -7%. To put this into context, the previous print was -0.1%. We also have UK Industrial Production (MoM) (Mar) with a number of -5.8% against a previous of 0.1%.  Negative numbers are going to be a continuing theme until we see a ‘return to a new normal’. When that does occur and how it looks will determine what shape the recoveries are. Hopes of a V shaped recovery are a little optimistic.

You can view last weeks movements on Cable (GBP/USD) in the graph below –

If you hold USD and need to go into GBP look to take advantage of being under 1.25 the figure. Please contact the trading department for a rate of exchange. Sterling, whilst I think undervalued, doesn’t have any upcoming catalyst to drive it higher. UK data is not going to be pleasant. We may see Cable higher if we see a weakening US Dollar although again, the US situation is as fluid as the UK. With continuing uncertainty and a myriad of potential outcomes please get in touch with your point of contact at Aston to discuss a strategy to mitigate your FX risk.

On the GBP/EUR front we’re stuck in a range. We briefly challenged 1.15 although we were met with resistance and are now trading in the 1.14s. There is no clear direction either way and I expect us to stay within a range of 1.13-1.16 this week. You can view the movements in the graph below -

If you would like a SPOT rate please get in touch with a member of the trading department and they will be able to assist with your specific requirements. Eurozone Governments gave the go ahead for a €540 Billion rescue plan end of last week so the ESM (European Stability Mechanism) can open credit lines for countries struggling to finance the impact on health costs. Further stimulus should also be forthcoming in different forms although this has yet to be finalised. With some EU countries now starting to ease lockdown pressures and getting ‘back to normal’ should there be no sustained second wave then the EUR may benefit in the coming months thus driving Sterling/Euro lower.

Oasis’s debut album sums up the current situation “definitely maybe”. There are more questions than answers at present so please do get in touch to discuss your current requirements so we can put a plan in place to protect you against any adverse movements in the FX markets.

If you have any questions please feel free to get in touch with me directly.

Have a good week and stay alert.

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.