ACM UPDATE MONDAY 29TH JULY 2019

The UK’s new Prime Minister Boris Johnson has wasted no time in making his transition into 10 Downing Street. He demolished the cabinet and has set about tackling Brexit with a new ‘War Cabinet’ that includes six senior ministers. Indeed, Brexit will be delivered ‘by any means necessary’. It should be an interesting few months at the very least!

The change of stance and approach of the UK Government now means there is a real chance of a ‘No deal’ Brexit on the 31st October. Whilst the aim is still to strike a deal with the EU the UK are now preparing to exit without a deal. Will the EU blink or will we leave without a deal? We’ll know in a few short months.

What has happened to Sterling/Dollar (Cable)? We have retreated to the downside posting session lows. We are now trading in the low 1.23s.

You can view the movements on the graph below –

GBPUSD 29072019.png

As I’m sure you’re bored of hearing me say if you hold US Dollars take advantage of these moves and lock in some Sterling at current levels. Please contact the trading department for a SPOT rate. Might we move lower still? Quite possibly. In addition to covering off a SPOT trade look at staggering some take profit orders. I think there’s more downside to go in this trade. If we couple the Sterling negative news there is also Dollar strength that doesn’t show much signs of abating. The annualised growth rate in Q2 printed 2.1% that came in better than expected. In addition to this, there is now less chance of numerous rate cuts by the Federal Reserve. Whilst I expect a 25bps cut this week from the Fed this is really a cautionary move than a sustained policy move. In what is a busy week for economic releases we have the NFP (Non-Farm payroll) figure released on Friday with a print of 170K expected. The previous figure was +224K. Expect some volatility around this release.

From a UK perspective we have the Bank of England meeting this Thursday. Will the BoE remain hawkish on their view of a smooth Brexit and their intention to raise rates? With the US likely to cut rates this week and the ECB last week preparing fresh stimulus through rate cuts and relaunching asset purchases due to low inflation, the UK are going against the grain of other Central Banks? However, with the chances of an economic shock to the UK increasing with the appointment of Boris Johnson would the BoE take a more cautious approach to interest rates now and potentially leave the option of cutting rates on the table? Potentially. The BoE will likely go into a ‘wait and see’ approach.

If you are buying US Dollars is there any respite in sight? I would suggest not for the rest of the summer. Sterling/Dollar will be on the back foot. Might Sterling/Dollar drop below 1.20 the figure? Potentially. I would suggest drawing a line in the sand and covering off some USD on a SPOT basis to give you a price point to work from. Come end of October? Where will GBP/USD be trading at? Your guess is as good as mine.

On Sterling/Euro we have seen a drop since Friday on this currency pair.

You can view the movements on the graph below –

GBPEUR 29072019.png

Again, this is down to expectations of a ‘No deal’ Brexit increasing under the new PM Boris Johnson. We are trading back under 1.11 the figure. We have inflation figures out of Germany tomorrow in the form of Preliminary Harmonized Index of Consumer Prices (YoY) (Jul) with a print of 1.3% expected. On Wednesday we have GDP (YoY) (Q2) with expectations of a print of 1.0% that is down from 1.2% previously. There is also Eurozone CPI figures released that day with a print of 1.1% expected.

As mentioned previously, the Bank of England meet this week so any language that is slightly bearish will impact Sterling and we may see another move lower on Sterling/Euro. If you are holding EUR please consider taking advantage of current levels and lock in some of the gains. If you contact the trading department directly they will be able to provide you with rates of exchange and discuss technical levels to aim for in upcoming trade. If you are buying EUR from GBP and didn’t take advantage of the shift higher to 1.12 last week do consider implementing orders to the upside should we see any weakness in European data this week. Again, please contact the trading department to discuss this.

If you have any questions please do get in touch.

Have a fantastic week.

Written by Liam Alexander

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.