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ACM Update Monday 23rd August 2021

'Summer’ is coming to an end. Will the last week of August provide Sterling with an opportunity to regain lost ground against the US Dollar and the Euro? Or like the summer will it be a washout for the Pound?

 

Sterling moved to the downside against the US Dollar last week hitting a 4 week low. You can view the recent movements in the graph below –

Hopes of a breakthrough of 1.40 are now on hold, although Sterling has rebounded slightly this morning  against the dollar with an improvement in risk sentiment. If you hold USD and need to move into GBP consider taking advantage of the recent moves in your favour. Cable (GBP/USD) moved around 1.9% last week so it’s an opportune time to lock in some gains on a SPOT or Forward basis. There might be some further downside risk so consider implementing a take profit order should we see Sterling come under further pressure. Please reach out to the trading department and they can discuss rates and technical levels with you.

I think risks are slightly skewed to the downside this week for Sterling. We had strong GDP figures out last week that showed UK PLC growth of 4.84%. However, I expect movements to be dollar led this week. We have the Jackson Hole symposium where the Federal Reserve Chair Powell will speak. Will we get any clarity around tapering? I don’t expect any definitive announcement on policy with ongoing delta variant concerns although we may see a slight change in language around tapering of asset purchases. Sterling also won’t have been helped from UK preliminary PMI (Aug) figures released this morning with a print of 55.2 against expectations of a print of 59 showing softer business sentiment. Couple this with an increase in Covid cases in the UK then this could force GBP lower short-term. Longer term I am still of the view Sterling will challenge and break through 1.40 the figure.

If you would like a conversation around your specific requirements please let me know directly and I will have one of the team get in contact with you.

Sterling/Euro is drifting in a sea of tedium at present. We’re not breaking out of any range in either direction. We’ve moved from a high last week of a little under 1.18 the figure back to the mid-1.16s. It’s about as interesting as reality tv at present. You can view the recent movements in the graph below –

This week we have the ECB vice President De Guindos speaking on Wednesday. Other than that we are extremely light on any Eurozone data and releases. The ECB will continue to wear the rise in inflation and I expect interest rates to continue to be kept on hold. Rate hikes, if they ever do arrive, will likely be in 2023 rather than next year. The Eurozone had some positive figures last week in terms of GDP growth at 2% and also a rise inemployment of 0.5%. Sunnier times ahead for the single currency? I expect it to continue to be on the back foot against the dollar and potentially against GBP medium term. Short-term, I expect GBP/EUR to be driven by Sterling news flow and events so there may be some movement in the pair this week. If you have a requirement to purchase EUR from GBP consider implementing some take profit orders to the upside should we see a push higher. The trading department can discuss rates and expected levels to be hit this week.

If you have any questions or would like to speak with a member of the Aston team please get in touch.

Have a fantastic week

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.

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