ACM Update Monday 7th September 2020

A mixture of Dollar strength supported by US macro news flow and ‘No deal Brexit’ back on the table has pushed Sterling/Dollar to the downside. Where now for Sterling?

Cable (Sterling/Dollar) reached 1.3472 last week. Similar to a Z list celebrity career it has plummeted. We are trading under 1.32 the figure. You can view the movements in the graph below –

Brexit is back in the headlines. We have a date of October 15th to strike a free trade deal with the EU. Sentiment around the Pound is now likely to be driven by the chances of a no-deal Brexit. It seems, for now, the UK negotiating position is to stand steadfast behind leaving without a deal should the EU not concede ground on some points. Sterling is going to be open to more volatility with any news flow and commentary around an increased chance of leaving without a deal. This will likely push Sterling lower. Could we trade back under 1.30 short term against the Dollar? Absolutely. 1.25/1.20 end of year? All scenarios are feasible. If you have a requirement to purchase USD from GBP please consider current levels on a SPOT basis. Please contact our trading department and they will be able to assist.

In terms of selling USD into GBP please speak with our trading department and they can implement take profit orders to the downside for you. They will discuss technical levels with you to make sure levels are realistic in the time frame required to execute.

Sterling/Euro hit an 11 week high at 1.1278 although has since given up the gains and settled in the mid-1.11's. You can view the movements in the graph below -

The economic calendar is fairly light this week. The EUR direction may be impacted by the release of Eurozone GDP (QoQ) (Q2) and (YoY)(Q2) with prints of -12.1% and -15% expected respectively. The main event for the Eurozone this week is the ECB interest rate and deposit decision and the press conference. Rates will be left unchanged. However, the commentary from the ECB president Christine Lagarde around the strengthening Euro and how to temper this will be keenly watched. Should we see any downward revision on inflation projections then expect further monetary stimulus before the year is out. There may be some volatility around this event so please make sure you have spoken with the team at Aston to discuss your FX requirements.

Brexit and Coronavirus will of course be large drivers of where currencies go in the coming weeks and months. The outcomes of both are at best unpredictable and at worst unfathomable. If you would like to schedule a call with a member of the trading department to discuss an FX strategy going into Q4 please feel free to get in touch with your point of contact directly. If you would like them to reach out to you please let me know.

Have a fantastic week.

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.