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ACM Update Monday 6th September 2021

In a predictably unpredictable year the sun is shining brightly this week! The US Dollar is weathering some clouds after a disappointing NFP figure on Friday. However, stubborn Covid numbers, discussions around National Insurance contributions and Brexit related shortages may suppress Sterling’s advance to the upside this week.

Sterling/Dollar

NFP (Non-farm payrolls) disappointed to the downside on Friday with a figure of +235K versus expectations of a print of +720K. The Dollar was sold off on the back of the release with Cable (Sterling/Dollar) printing a fresh two week high of 1.3874. The NFP figure pretty much ends the banging of the drum for a taper of asset purchases from the Federal Reserve in September. Where does Sterling/Dollar go now? It is getting pulled in both directions with Sterling lagging behind peers in trying to take advantage of the under pressure Dollar. Will Sterling data improve and give Cable (Sterling/Dollar) the impetus to break through 1.39 the figure again and indeed 1.40? I think there is every possibility in September to trend higher.

You can view last week’s price movements in the graph below–

 

If you have a requirement to purchase USD from GBP consider implementing some take profit orders to the upside. Consider placing orders around 1.3850/1.39 to take advantage of any GBP momentum and/or USD weakness. With Q4 coming into view shortly please reach out to the trading department and they can have a conversation with you to discuss a strategy to make sure you have covered off your risk and are neither over nor under hedged. If you would like a member of the team to schedule a call with you please contact me directly.

Sterling/Euro

All eyes will be on the ECB (European Central Bank) this week. Will they stick to their consistent dovish approach or will they turn towards a more hawkish tone around a reduction in asset purchases with estimates of inflation rising to around 3%? I think they’ll stick to the same script they’ve read throughout the pandemic – one of caution. However, the ECB may signal a slight easing in the PEPP (Pandemic emergency purchase programme) purchases this week with the March 2022 expiry coming into view. Again, if this is the case, the ECB president, Christine Lagarde will signal it is done with caution with the pandemic far from over. On Tuesday out of the Eurozone we have GDP (QoQ) and (YoY) Q2 with prints expected of -0.6% and 13.6% respectively.

What will the above do for Sterling/Euro? We are currently trading in the 1.16s, rather boringly we have been in this range for quite a while.

You can view the recent movements in the graph below –

We have UK GDP (MoM) (July) released on Friday this week. Whilst not expected to be as strong as the previous month UK PLC is still showing signs of improvement. EUR/USD may push higher so this may in turn stall any significant march higher for GBP/EUR. Again, I think it’ll be a case of a dull 0-0 draw with little movement in GBP/EUR this week.

As ever, there seems to be too many issues to fathom at present that can move the markets. We will look to try and mitigate your position as much as possible by taking a risk based approach to your FX strategy and management. If you would like to schedule a call with a member of the team so they can put a strategy in place for your specific requirements please let me know.

Have a fantastic week and enjoy the sun.

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.

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