ACM Update Monday 4th May

“On and on and on and on like Ariston”. Those of a certain vintage will remember the advert. The anticipated economic V shape recovery may now well be a W shaped recovery.

The next few weeks will be key in determining when and how we get back to work. Largely, this will dictate the economic outlook for the remainder of 2020. Once a coherent strategy is in place we then have a multitude of factors that will contribute to how sharply we get the economy back on course under a “new normal”.

A US/China escalation is almost inevitable. Deflation in the UK is a possibility. GDP figures are likely to be negative for 2020. How will the high street respond? What will the job market look like? There are numerous risks and challenges that are going to provide significant volatility in the currency markets over the remainder of this year.

Sterling is largely treading water at present. We’re stuck in a range of 1.23-1.25 at present on Cable (GBP/USD). You can view the movements in the graph below –

I’ve said I don’t expect us to trade in the 1.15's again and whilst investors will continue to flock to the dollar as a safe haven I do expect some Sterling strength. Could we regain 1.30? Quite possibly. I think GBP/USD is slightly undervalued at present. If you have a requirement to purchase USD from GBP please contact the trading department to discuss technical levels.

This week we have the Bank of England policy meeting although I wouldn’t expect any further stimulus after recent race cuts and the bond buying program. It will be steady as she goes for now. Out of the US this week we have ISM Non-Manufacturing PMI (Apr) released with a print of 32 expected. Anything under 50 shows a contraction so expect the dollar to come under some pressure. The main release out of the US this week is of course the NFP (Non-Farm payroll) (Apr) figure. This is going to give us an idea of the jobs situation in the US. A quick clue – the number isn’t going to be positive. This release is going to give us a much clearer picture of the US situation as it’ll take into account April numbers when cororavirus had a real impact. If you have a requirement to convert USD into GBP I would consider looking at a SPOT price prior to this release end of the week. Please contact a member of the trading department to discuss levels.

In terms of GBP/EUR we danced with 1.15 the figure although have since returned to our chairs. We’re trading in the mid-1.13s. You can view the movements in the graph below –

If you need to cover off some EUR into GBP consider taking advantage of the recent downward move. There isn’t too much data out of the Eurozone this week although of course all eyes are on the coronavirus and how countries are dealing with exiting lockdowns and trying to get their particular economies back up to some sort of functioning level.

In terms of purchasing EUR from GBP I think we will have another push higher. Consider implementing take profit orders at 1.14 the figure. Please contact the trading department to implement these.

If you would like to discuss your specific requirements with me directly feel free to reach out.

Hopefully, some kind of normal will be back with us in the coming months.

Enjoy your week.

Stay safe

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.