Sterling/Dollar is trading to the downside this morning. Is this the start of a move lower or will there be a rebound in Cable (Sterling/Dollar) to the psychological level of 1.40? Cautious optimism around a US recovery and a dovish tone from the MPC (Monetary Policy Committee) around rate rises may lead to some headwinds for the Pound against the dollar in upcoming trade. Will the England football team face their own headwinds against Germany this evening? We’ll soon find out.
The US Federal Reserve has brought forward its rate hike schedule and is projecting two increases by 2023. The FOMC (Federal Open Market Committee) still maintain that inflation is transitory although they aren’t comfortable waiting around further out than 2023 to potentially start the hiking cycle. We expect to hear further signals to the market around the unwinding of the Fed’s bond buying program towards the end of the summer. This may be at the Jackson Hole symposium in August. Clearly, there is a lot of data to look at over the coming months with the NFP (Non-Farm Payroll) figure being the first real indicator. We expect a print of +690K against a previous of +559K.
If you have a requirement to sell Dollars against Sterling consider placing a take profit order in the market ahead of the NFP (Non-Farm payroll) release on Friday. Please contact the trading team and they can discuss technical levels to consider. You can view the recent movements in Cable (GBP/USD) in the graph below –
The UK has continuing concerns around the spread of the delta variant that will impact Sterling up to 19th July. Should it indeed be ‘freedom day’. We have UK GDP (QoQ) (Q1) released on Wednesday with an expected print of -1.5%. Whilst negative the outlook for UK GDP growth on an annual basis remains positive with expectations for a (YoY) figure of anywhere from 7.5% to 8.2%. Expectations for a release of pent up demand over the summer in terms of consumer spending will help drive UK PLC back to pre-Covid levels quicker than previously anticipated.
Sterling has struggled against the Dollar mainly due to Dollar strength rather than a dynamic shift in the markets view of Sterling. Perhaps Sterling has lost some of its lustre now the vaccine rollout and disparity has closed with Europe and the US although I don’t expect Sterling to move substantially lower short-term. However, risks are slightly skewed to the downside at present so to mitigate some of this risk consider covering off a portion of your exposure on a SPOT basis or a short-term forward. If you would like a member of the trading department to get in touch to discuss your specific requirements please let me know. They can tailor a strategy that will meet your needs so you are appropriately hedged.
In terms of Sterling/Euro you can view the recent movements in the graph below –
Sterling has largely been trading in a range from 1.1570 to a little over 1.17 the figure in June. We’re currently trading around the mid-1.16s. Europe has had a spike in coronavirus cases with the delta variant spreading. EUR is likely to weigh heavy over the summer months so I expect Sterling/Euro to consolidate its position with the potential for further upside over the coming months. There seems to be the beginning of a divergence in policy around rate hikes with the ECB (European Central Bank) not looking likely to do so until 2024 against expectations of 2022 in the UK. This should be supportive for Sterling against the Euro. If you have a requirement to sell EUR against GBP I would look at covering off a portion of your exposure at current levels on a SPOT basis.
If you hold GBP and need to move into EUR consider implementing take profit orders to the upside to take advantage of potential upcoming market movements. We are relatively light on data this week although we do have the ECB president, Christine Lagarde speaking. There will be commentary around inflation although I don’t expect any change in the narrative from the ECB.
If you would like a member of the Aston team to get in touch with you directly to discuss your specific requirements then please do let me know.
Have a fantastic week