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ACM Update Tuesday 6th April 2021

Now all the Easter eggs have been consumed I expect markets to get back to their erratic self. Will the easing of restrictions from Westminster prove to be the catalyst for UK PLC to recover strongly and at pace? Will Sterling/Euro hit the giddy heights of 1.20 again? Q2 is shaping up to be very interesting indeed.

On Sterling/Euro I expect us to push higher. The continued vaccine disparity between the UK and Eurozone rollout will provide Sterling with further wind in its sails in Q2. In addition, I expect the single currency to come under further pressure. The next impending crisis in the Eurozone? Lack of willingness from the German constitutional court to ratify the recovery fund. The Eurozone recovery is now further in doubt unless Fiscal stimulus can be agreed. There is further disillusion rather than cohesion and closer ties within the Eurozone. We’re back again to the northern economies bailing out the southern economies. Sterling/Euro should rise over the summer months. If you have a requirement to purchase EUR please speak with a member of the trading department and they can discuss take profit orders and technical levels so you benefit from any upside. Also, consider hedging out some of your risk with Forward Contracts. Please speak with the trading department and they can discuss pricing and any margin requirements.  If you hold EUR at present and need to move back into GBP it may be prudent to cover off at least a percentage of your requirement on a SPOT basis. If you would like SPOT rates please get in touch with the trading department.

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

Sterling/Dollar was trading around 1.39 the figure after the UK press conference on Monday. You can view the recent movements in the graph below –

 

 

It was confirmed that restrictions would be eased in line with the roadmap previously detailed from the UK Government. Will Sterling take back momentum against the Dollar and challenge, and indeed break through, the psychological level of 1.40? This will largely depend on USD performance. Sterling will rally higher this year. I expect 1.45-1.50 on Cable (GBP/USD) by year end. Quantitative easing is here to stay and interest rates will be kept low in the US. An ever expanding current account and fiscal deficit will contribute to the US Dollar being on the back foot. We have the Federal Reserve Chairperson, Jerome Powell, speaking this week. He will provide us with a better handle on the direction of the US Dollar and commentary around inflation targets and rates.

Whilst many will share my view on Sterling/Dollar there will be plenty in the Dollar bull camp that would suggest otherwise. This currency pair has the potential to move and indeed change direction quickly in Q2. Economic and political landscapes shift quicker now than they ever have. Throw in the continuing pandemic and volatility will remain heightened. If you have a USD requirement it would be prudent to speak with one of the trading team and they can discuss hedging strategies with you around your USD exposure. If you would like a member of the trading team to get in touch directly please let me know. Again, if you hold USD and need to move back into GBP consider covering off some on a SPOT basis to mitigate any risk of further upside in GBP/USD.

There isn’t a great deal of data out this week so currencies will move more on commentary. If you haven’t yet put a plan in place around your currency hedging for Q2 please reach out and we can implement a strategy for you that will mitigate your downside risk.

If you have any questions please do let me know.

Have a fantastic week

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.

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