ACM Update Tuesday 16th June 2020

The shops are open. Whilst unfathomable to the sane, queues at Primark and other stores at 7am are going to help kick start the economy. Spend spend spend seems to be the announcement from the town crier.

Is this the start of the recovery for UK PLC? I believe it is. However, any notion that by Q3 or indeed Q4 we are going to be back to ‘normal’ is a little optimistic. There are huge challenges to overcome and the end of Q1 2021 may give us a better indication of how we have dealt with the economic ramifications of the coronavirus pandemic. Over the coming months we also have the small matter of obtaining a Brexit deal before the transition arrangements expire. 2020 has been a fairly non-descript year really.

Sterling is holding its position against the Dollar today. We had data out this morning that showed the UK unemployment rate held at 3.9%. This came in better than expected. A rise to 4.5% was on the cards from various analysts. The number held at 3.9% as the Government has been propping up payroll allowing companies to keep employees on their books through the job retention scheme. From late summer onwards, when employers need to start contributing to the payroll of furloughed employees, and indeed when the scheme comes to an end in October, we are going to see the real data. Unemployment levels are likely to push markedly higher. The number of job vacancies had their largest quarterly fall since 2001. This shows how tough it is for people currently out of work to find employment. It’s going to be a tough year ahead unless the Government introduce a raft of measures to push us back to recovery.

Sterling/Dollar is holding above 1.26 although it is struggling to gather momentum and break through 1.27 again. You can view the recent movements in the graph below –

If you have a requirement to purchase USD it may be worthwhile covering off some of your exposure at current levels. If you would like a rate of exchange please get in touch with our trading department whom will be happy to assist.

We have US retail sales out this afternoon. We are expecting a recovery from the historic lows in April. It will be the degree of the recovery that will determine the course for the Dollar in upcoming trade. If we see a strong recovery in consumption then expect the Dollar to push higher against a basket of currencies. If the number is more subdued then we may see a sell off in the Dollar. If you have a USD exposure please get in touch and we can chat through your individual requirements. We also have the Fed Chair,Jerome Powell, speaking this afternoon. He will give us a steer on the US economy and monetary policy.

The Euro is still flexing its muscles. Indeed, on EUR/USD we are sitting above 1.13 the figure after trading around and under 1.10 for most of this year. On Sterling/Euro, the strength of the single currency is stopping any push higher for GBP. They’re cancelling each other out. If you have a requirement to sell EUR into GBP I would look at covering off some at current levels on a SPOT basis or a Forward Contract. We were over 1.1250 only a week ago. The Euro is being helped as for the most part the Eurozone economies are further along the ‘opening’ process. If you would like to take advantage of the recent move in your favour please let your relationship manager or your trader know and they can come back to you with rates. You can view the recent movements in the graph below –

On Thursday we have the Bank of England minutes released alongside the interest rate decision. Talk of negative rates have largely dissipated in recent weeks and I’d expect rates to remain unchanged. We should get a better handle on the BoE’s inflationary outlook too.

The potential for unexpected large movements in currencies this year are high. It feels like we’ve been saying this since the Greek Government debt crisis although this pandemic is unusual in the fact it is a health crisis that has brought on an economic crisis. Whatever anyone says, how the next year plays out is guesswork at present. The only thing you can do to protect yourself in the currency markets is to have a robust strategy in place to mitigate against any sharp moves against you to the downside. Please get in touch with a member of the Aston team and we can work with you to develop a strategy that best suits your individual needs.

The shops are open. Now, for the pubs and restaurants to open!

Have a fantastic week and any questions please feel free to get in touch.

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.