ACM Update Monday 30th March 2020

Sterling is going to be a Jekyll and Hyde character for a while yet. It is indeed a strange case. We saw both personalities last week and I would expect this to continue for the foreseeable future for Sterling.

I’m not quite sure we can call 1.14-1.24 on Cable (Sterling/Dollar) a ‘range’ although that’s the parameters Sterling has been trading in. Sterling had some time in the sun last week to lighten the doom and gloom.

You can view the movements in the graph below -

It’s a rather broad range. Have we settled down now and found some modicum of sense in the markets? Perhaps. However, for the remainder of 2020 expect volatility and uncertainty as coronavirus continues to rip up economic forecasts and thinking. Throw in towards the end of the year the small matter of leaving the European Union with or without a deal and then things really do become fun. However, that’s for further down the road.

On Friday evening the Credit rating agency Fitch downgraded the UK to AA- from AA due to concerns around the impact of coronavirus and Brexit uncertainty. Couple this with the UK’s loosening of Fiscal policy that will impact the public finances and Sterling has traded to the downside on Monday morning. Expect further downgrades and GDP forecasts to plummet globally and an enormous debt burden to contend with at the end of all of this. Whilst we may get back to ‘normal’ at some point towards the end of the summer the economy certainly won’t. A cheery outlook I know.

Is there further downside for Sterling or will the focus now shift to the US economy and put the Dollar on the back foot? I expect Sterling to continue to have wild swings although I think we’ve found a floor around the 1.15 mark on GBP/USD. I don’t expect us to move much lower. With inconsistencies in the US approach, both politically and on an economic front,the US Dollar may see some weakness. There may be some light at the end of the tunnel for those of you that need to purchase USD from GBP. Please get in touch with a member of the trading department to discuss implementing take profit orders to the upside.

If you need to move USD into GBP these are still historically fantastic levels. In these markets there is no ‘normal’ or ‘new normal’. Sterling could move back above 1.30 just as easily as it could move back down to 1.14. If you need to convert USD/GBP please do consider implementing a SPOT transaction at current levels.

Sterling/Euro has moved higher over the past week and we are now challenging 1.12 the figure. You can view the movements in Sterling/Euro over the past week in the graph below –

 

I don’t expect a massive move higher in GBP/EUR. We may push up to 1.15 in the next couple of weeks although I don’t see much more in the trade. According to the experts we will be hitting the peak of the coronavirus in the UK in the coming weeks so I expect this to weigh on the Pound as we may need to implement further social and economic measures. If you need to trade EUR into GBP consider some staggered take profit orders to the downside should Sterling give up its recent gains.

Whatever your requirements please do get in touch with a member of the Aston team. Let’s face it, chatting through your FX requirements is never top of the list of priorities. However, it can at least provide you with a level of certainty and comfort that your FX risk is one less thing to worry about.

I will leave you to get back to the biscuit tin.

If you have any questions please do get in touch.

Stay safe.

 

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.