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ACM Update Tuesday 1st June 2021

Sterling/Dollar has reached three year highs around 1.4250. Will the upside momentum continue? Optimism around economic data and the potential re-opening in three weeks’ time would suggest further gains for Sterling against the Dollar. However, the past year has taught us that things can change quicker than the British weather!

Sentiment around Sterling remains robust and the vaccine drive continues to boost recovery hopes. Expectations are for UK GDP to grow by around 7% this year. That will outpace global growth of around 6%. With the UK nearing a full re-opening on 21st June (if it isn’t delayed by concerns around a new variant) then the services sector will be full tilt and consumption and retail sales will take off. It could well be a glorious British summer.

All of the above activity will of course fuel domestic inflation. Will it be temporary or not? That is the question policymakers will be grappling with over the coming months. If inflation continues apace and the housing market show’s no sign of letting up then interest rates will likely rise. Should inflationary pressures prove lower than expected after an initial “we’re free, lets go spend” period post lifting of all restrictions then interest rates will likely remain the same. Negative rates could be on the cards although I think that is now highly unlikely unless we enter further lock downs and people find it hard to adjust back to pre-pandemic behaviours. The Bank of England Governor, Andrew Bailey, is speaking this evening and also on Thursday. Any commentary around rates/inflation/Sterling will be keenly listened to.

 

You can view the recent movements in Sterling/Dollar in the graph below –

 

If you have a requirement to purchase USD from GBP consider taking advantage of some of the recent gains and locking some in on a SPOT basis. I do think Cable (GBP/USD) pushes higher in Q3 so consider implementing some take profit orders to the upside. Feel free to get in touch with a member of the trading department and they can discuss technical levels to aim for.

From a US perspective we have ISM Services (PMI) May released Thursday with the Fed Chairperson Powell speaking Friday. This is followed by the release of the NFP (Non-Farm payroll) figure on Friday with an expectation for a print of +650K. Anything less than that and we may see a selloff in the Dollar that may push GBP/USD higher.

On the Sterling/Euro front we are dancing around 1.16 the figure with a slight retracement lower this morning. You can the view the recent movements in the graph below -

We have challenged 1.18 beginning of April although the Euro has held ground and indeed is above 1.22 on EUR/USD. This Euro strength is cancelling some of the GBP gains. If you need to purchase EUR from GBP I would look at some on a SPOT basis. I don’t see Sterling climbing massively higher against the single currency this year. At a push 1.20 although I think we’ll range between 1.14 to 1.19 for most of this year. Vaccine disparity has aided Sterling against the Euro although some of those gains have been priced in now. European countries are slowly coming out of their own lock-downs and that should aid the single currency. In terms of data this week from the Eurozone we aren’t too heavy. We have the ECB President Lagarde speaking tomorrow with Retail Sales (YoY) (Apr) released Friday with an expectation of a print of 25.5% against a previous print of 12%.

If you would like to speak with one of our traders or me directly please feel free to reach out and we can schedule a call. Over the coming months the FX landscape may again change dramatically so having a hedging strategy in place will allow you to mitigate your risk effectively.

If you have any questions around your own specific requirements I look forward to hearing from you.

Have a fantastic week

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.

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