The week of ‘Brexit’ has finally arrived. After writing the first few paragraphs of this report (that’s 15 minutes of my life I won’t get back I guess) saying the only clarity we currently have is there is no clarity, the EU have provided some clarity by confirming that there is an extension to 31st January 2020. Apologies, it isn’t an extension, it’s now a ‘flextension’.
Sooooooo, what was the reaction from Sterling to this announcement? Zero. Nil. Diddly. Sterling didn’t move. Well at least we’ve avoided, for now, the apocalyptic scenario for Sterling of the UK crashing out of the EU with ‘No deal’.
After Sterling had a significant rally the week prior to last there was relative calm around Cable (Sterling/Dollar) last week. Indeed, Sterling has slipped from recent highs and is treading water in the 1.28’s.
You can view the movements last week on the graph below –
Where does Sterling end this week against the Dollar now we’ve had the news we’ll be granted a ‘flextension? I think we’ll push slightly higher on Cable and again test the psychological level of 1.30. Do I think we’ll push considerably higher than this? Unlikely. Why? The can has been kicked down the road again with a further extension. There will likely be a general election prior to Christmas. Uncertainty will continue now into year end.
However, on a positive note, I think a lot of the downside risk on Sterling has now subsided as some kind of deal will likely be cobbled together at some point.
If you hold US Dollars please do consider converting some on a SPOT basis whilst we’re under 1.30 the figure. Whilst all eyes are on Brexit related news there is a lot of US data out this week. We have the Federal Reserve meeting on Wednesday where I expect an interest rate cut for the third time in a row. We also have Preliminary GDP annualised (Q3) with an expected print of 1.6%. In addition to this we also have the NFP (Non-Farm Payroll) figure released on Friday with an expected print of +105K. Whilst the US Dollar has been relatively strong of late should we see any deterioration in data then we could see a Dollar sell off, coupled with Sterling strength, may drive GBP/USD higher.
If you are selling Dollars into Sterling please do get in touch with our trading department to discuss your upcoming requirements.
Buying US Dollars? Has the tide now finally turned? Perhaps. If you have a requirement to purchase USD from GBP consider implementing take profit orders at 1.29 and 1.30. There may well be a push in your favour towards the end of this week and into the beginning of November. However, the old phrase ‘a week is a long time in politics’ couldn’t be more apt now than ever. Please do have a plan in place around your requirements this week should our politicians decide to come up with some new way of acting like schoolchildren.
Sterling/Euro is relatively range bound at present. We’re flirting with 1.16 the figure. If you have a requirement to sell EUR back into GBP I would consider these levels to be good value. In a few weeks’ time I would expect us to be pushing upwards towards 1.18 or so. Whilst the entire political landscape is currently in disarray and we have in effect a zombie parliament, Sterling has weathered everything so far. If we get some clarity on an election date and we now have a ‘flextension’ I think we’ll see some support around Sterling. If you would like a SPOT rate on EUR/GBP please contact the trading department.
You can view the recent movements on Sterling/Euro on the graph below –
In addition to all the fun and games between the UK and the EU we also have some important data releases this week, mainly from the EU. We have the departing ECB President, Mario Draghi, speaking today, with data out from Germany tomorrow in the form of an expected preliminary print of 0.9% for the Harmonised Index of Consumer Prices (YoY (Oct). On Thursday we have the release of GDP (YoY) and (QoQ) (Q3) with an expected print of 1.1%. This is followed by inflation data in the form of CPI (YoY) (Oct) with a print of 0.7% expected.
Aside from the above, of course, most attention will be given to Parliament this week. Will Boris Johnson get a two thirds majority to trigger a general election? Unlikely. More fun and games will continue. Quite honestly, there is frankly numerous different outcomes that would take hours to detail.
Please make sure you speak with our trading department this week to get a handle on where things may likely end up from a currency perspective.
If you have any questions please let me know.
Have a great week.
Written by Liam Alexander