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ACM Update Monday 2nd March 2020

Whilst the mornings are getting lighter so is Sterling. It is very much a bystander whilst risk aversion rules due to the worst week for global financial markets since 2008. Indeed, Sterling has been sold off against CHF/JPY/EUR/USD.

If you hold EUR and need to convert into Sterling you are in a far better position today than you were on Friday. Please get in touch with a member of the Aston trading department to discuss taking advantage of the moves in your favour and technical levels to the downside.

You can view the recent movements in GBP/EUR on the graph below –

With Coronavirus developments being front and centre investor sentiment has deteriorated sharply. This is likely to continue for the short-medium term at least. However, Central Banks have acted promptly and shown a united front. The US Federal Reserve and The Bank of Japan have said they will help protect markets. Indeed, the Bank of England will “ensure all necessary steps are taken to protect financial and monetary stability”.

Sterling may come under some further short-term pressure as we have UK/EU talks getting underway today with fears of a no deal Brexit back on the table. We are currently trading at 4 ½ months lows after some news that Germany is looking at ways to stimulate the economy. We have retreated from highs of just under 1.2050 on February 18th to where we are currently trading at.

There isn’t much news out from the Eurozone this week with inflation data in the form of Preliminary CPI (YoY) (Feb) released with an expected print of 1.2%

In terms of Sterling/Dollar we’ve moved lower. With the continued uncertainty around the UK/EU trading relationship and the UK Manufacturing PMI coming in under expectation Sterling is on the back foot. The one saving grace is that with market participants expecting a US interest rate cut from the Federal Reserve USD is under selling pressure. This has limited the downside move.

You can view the recent moves on Cable (Sterling/Dollar) on the graph below –

This week is light on the data front. We have ISM Non-Manufacturing PMI released and the US Non-farm payrolls (Feb). Expectations are for prints of 55.5 and 178K respectively. For Sterling this week the data is going to be secondary to the first UK/EU meeting between the UK negotiator David Frost and the EU negotiator Michel Barnier.

As can be determined from the last week or so the sentiment around currencies can change extremely quickly. Whilst trading on SPOT has benefits if your timing is right it is best to have a strategy in place that both protects your downside risk whilst allowing upside potential. Please get in touch with your relationship manager to discuss an effective strategy to mitigate the inevitable headwinds that the next few weeks will bring.

If you have any questions please do let me know.

Have a fantastic week.

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.