ACM Update Monday 16th December 2019

Friday 13th. Unlucky for some. Not for Boris it seems. The building and rebuilding of relationships/trade talks/inward investment and Sterling can begin. Whilst Boris may not have the building skills of a Thomas Cubitt we need to start somewhere.

Our predictions on the direction of Sterling proved correct over the election period. Now, what next? I expect Sterling to be significantly higher against the Euro next year as I think the single currency is overvalued against both the Dollar and Sterling. However, we can look into 2020 in the coming weeks.

We had a bounce of a little under 3% on Friday on Cable(GBP/USD) to over 1.35 the figure (last seen May 2018) although we have since retreated back to the mid-1.33s.

You can view the movements on the graph below

 

I would expect Brexit legislation to be put before Parliament before a rotund gentlemen descends down a chimney. This would then give the UK the opportunity to start trade talks in earnest in January/February. I would expect talks with the US to run parallel with these.Whilst the media will quite rightly now focus attention on trade talks after 3 years of ‘Brexit’ and various referendum/election conversations some focus may just return to the underlying economics of UK PLC. The value of Sterling in 2020 will now move from being largely dictated by news-flow and commentary to fundamentals. Expect a greater focus on monetary policy.

If you have a requirement to purchase US Dollars from Sterling prior to Christmas consider converting on a SPOT basis this week. Take advantage of the move higher in Cable (Sterling/Dollar). Remember, we were under 1.30 only a month ago. If you would like a rate of exchange please contact the trading department. I don’t expect any major movements in the FX markets now until January so it should be relative calm until then.

Whilst we all start eating chocolate at 10am now is the time to start considering your Q1’ 2020 Forward positions. Please do speak with the trading department prior to end of year. Especially if you hold US Dollars and have ongoing requirements back to Sterling. I do think we’ll see Cable(GBP/USD) higher next year so it may be worth locking in some Sterling to offset some of your FX risk.

On Sterling/Euro we hit the dizzying heights of 1.20 the figure after the General Election result. Like the race to be Christmas number 1 in the music charts (LadBaby is winning apparently – yep, me neither) expect a battle to commence around 1.20 to determine if we can sustain a break higher. Over the coming weeks I would expect a range of around 1.1800-1.2050.

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

As mentioned previously I expect Sterling/Euro to push higher next year. I would expect around 1.25-1.30 on GBP/EUR. If you have ongoing requirements to move EUR/GBP I would suggest speaking with our trading department to consider implementing Forward Contracts. These contracts would help mitigate some of the risk. If you would like a discussion around margin requirements please speak with your relationship manager or a member of the trading department.

In terms of data this week we have the UK ILO Unemployment Rate (3M) (Oct) released with an expected print of 3.9%. On Wednesday we have the ECB President Lagarde speaking followed by UK inflation data in the form of CPI (YoY) (Nov) with an unchanged print of 1.5% expected. Thursday we have the Bank of England meeting with minutes released and the interest rate decision(unchanged at 0.75% is the expectation). Rounding off the week we have UK GDP(QoQ)(Q3) released on Friday with a print of 0.3% expected.

Have an excellent week and start piling on those festive pounds!

If you have any questions please do let me know.

Written by Liam Alexander

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.