Wonders will never cease. An American President will sit down with a North Korean leader in Singapore on Tuesday. More surreal is the fact that Scotland beat England at cricket. Who knew Scotland had a cricket team! Did you know that the former Rangers, Manchester United and Scotland Goalkeeper Andy Goram is the only person to play in an international cricket match and an international football match. There we go readers (for those of you that are left after GDPR), you learn something every day!
The G7 Summit went well. Then it didn’t. Expect trade and tariff tensions to continue between President Trump and the G7 members and pretty much every other country for the foreseeable future. I doubt Justin Trudeau will be invited over to the White House for a BBQ this summer.
Turning our attention back to the UK, Sterling is under pressure. We had disappointing data out in the form of industrial and manufacturing production this morning in addition to the trade surplus widening. Cable (GBP/USD) has now retraced the recovery it made last week back below the 1.34 handle. We have a busy week on the data front with the ILO Unemployment rate (3M) (Apr) and average earnings out tomorrow. We also have inflation data out on Wednesday in the form of CPI (Consumer Price Index). I would expect us to show a slight uptick in inflation to 2.5% although most estimates are for a print of 2.4%. The weak pound has culminated in a drop in inflation this year although with oil prices heading higher there may be more of a conversation around the Bank of England raising interest rates in August. This may give Sterling a shot in the arm towards the end of the summer months. For now, I expect Sterling to remain on the backfoot.
You can view recent price movements on Sterling/Dollar below –
GBP/USD - 1 Week
If you hold USD consider converting some of these holdings back to Sterling on a SPOT basis or lock in some more on a Forward Contract. Do I expect GBP/USD to remain at these levels long-term? No. We will see Sterling/Dollar push higher with a test of 1.40 again at some point. If you look at things on a 10 year basis the average GBP/USD rate is a little over 1.52. Take advantage of the recent moves and lock in some Sterling. Please contact a member of the trading department for a rate of exchange.
If you are a USD buyer from Sterling we have a raft of Dollar related activity this week in addition to the UK focused data. We have inflation data out of the US tomorrow followed by the Federal Reserve meeting on Wednesday. It is expected that interest rates will be raised by 25 bps to 2% from the current 1.75%. This will have been priced in by the market although the act of raising rates and any communication on future projections and the pace of future rises should be dollar supportive. If you need to purchase Dollars this week consider doing so prior to Wednesday on a SPOT basis. Feel free to contact me directly should you wish to discuss your individual requirements.
We have been trading in a tight range for what seems like an eternity. An asthmatic sloth moves more. However, the UK and ECB are likely to be more of a focus this week so we should see some movements. We have the ECB interest rate decision and policy statement and press conference this week. Whilst rates will be left on hold expect QE (Quantitative easing) and the potential end of the ECB’s bond-buying program to be discussed. The purchase of bonds will be phased out although will the end date be set at this meeting or in July? Should the ECB president Mario Draghi decide to wind down Bonds then it’s a signal to the market that the Eurozone is finally out of crisis. There is still a huge divergence between the ECB and the Federal Reserve which is reflected in the current EUR/USD rate. This move by Draghi may give the Euro a boost and drag it back above 1.20 the figure. What will this do to Sterling/Euro? It may push GBP/EUR slightly lower short-term. If you hold Euro’s and need to convert to Sterling please contact the trading department and discuss implementing a market order to take advantage of any intra-day movements in your favour.
You can view the recent price movements on Sterling/Euro on the graph below –
GBP/EUR - 1 Week
If you need to convert Sterling into Euro I would consider 1.14 the figure a target to lock in at. Yes, it isn’t great. However, in the current market this is looking mid to toppish at present. Give yourself a realistic price to work from and over the summer months we can look at averaging this up for you.
The FX landscape is open to rapid change due to how politics and economic policy are largely played out these days. Please make sure you have discussed a strategy with us to limit your downside risk whilst allowing yourself room to take advantage of any opportunities to the upside.
If you have any questions please let me know.
Have a fantastic week.
Written by Liam Alexander