ACM Update Monday 13th January

2020 is off to a wonderfully geo-political start. Whilst there has been a de-escalation of the US/Canadian Iran crisis and oil prices have retreated from recent highs, tensions in the Middle East will continue. Couple this with the signing of the US/China Phase 1 trade agreement this week and thoughts of what Quality street to eat on the couch are long gone. At least Brexit won’t be discussed too much this month. Oh wait.

Sterling has come off against the Dollar on the back of dovish comments from Bank of England’s Vlieghe. The door is being left open fora rate cut this year should the UK economy not generate adequate growth levels. Whilst this uncertainty continues Sterling may be under pressure. If we hold above 1.29 this should act as a strong support level for Cable(Sterling/Dollar).

I expect Sterling/Dollar to climb higher this year and trade back around 1.35 the figure with some Dollar weakness being the main driver rather than Sterling strength. If you hold US Dollars and can convert back into Sterling under 1.30 I would suggest this is a good level to achieve.

You can view the movements on Sterling/Dollar over the last week in the graph below –

Last week we had the release of the NFP (Non-Farm payroll) figure. This disappointed to the downside with a print of +145K against expectations of +164K. Whilst jobs are still being added the gain in jobs last year in the US was the lowest since 2011. At the end of January we have the next Fed interest rate decision. Like the UK I expect rates to be left on hold – for now. Should calls for a rate cut in the US increase then this is going to knock the wind out of the sails of the Dollar. As we settle into 2020 and get some more up to date information on the economy then the picture will become clearer. If you need to purchase US Dollars then consider staggering take profit orders around 1.30 the figure so you can execute on the way back up. Please get in touch with one of the trading team to implement an order.

Sterling/Euro has come off from highs over 1.20 on the back of the UK General Election. You can view the movements in the graph below -

Will there be a ‘Boris bounce’ this year? Largely, this will be dependent on how Brexit negotiations advance with the EU. Once the UK formally leaves the EU on 31st January where the UK will enter an 11 month transition period. The UK has said in the PM’s Brexit Bill that a deal will be done this year and that the transition period will not be extended. Hmmm. I’m sure we’ve heard of extensions not being extended then being extended before? However, we have in effect a hard deadline now to work towards. The nearer and more likely we are to doing a deal Sterling will rally. If a deal is far off then Sterling drops. Same parallels as the good old ‘Deal or No deal’ since the EU referendum in 2016.

If you need to sell EUR/GBP consider taking advantage of the moves lower over the past month. Please get in touch with the trading department to lock in a SPOT transaction.

In terms of data surrounding Sterling and the Euro this week we have an inflation release from the UK on Wednesday in the form of CPI (YoY)(Dec) with an expected print of 1.5%. On Thursday out of Germany we have Harmonized index of Consumer Prices (YoY) (Dec). This is expected to come in at 1.5%. Following this we have the ECB Monetary Policy meeting Accounts released that rounds off the week.

If you have any questions around your Q1 exposure please get in touch with the team to discuss your individual requirements.

Have a fantastic week

 

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.