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ACM Update Tuesday 9th March 2021

What a performance that was. No, not that one. Sterling against Dollar and Euro for the majority of February of course. The UK economy is getting closer to being open for business. Does Sterling correct the recent downtrend and continue higher in March or are we due a period of consolidation?

EUR/USD is on the back foot around 1.19 the figure giving a foundation for GBP/EUR to work from. We’re currently trading in the mid-1.16s. On a 3 month basis we’re around 8% higher on GBP/EUR. If you have a requirement to purchase Euro from Sterling consider locking in some of these gains on a SPOT basis. Please contact the trading department and they can provide you with current rates.

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

 

I expect Sterling to continue gradually higher against the single currency over the coming months. Vaccine disparity between the UK and EU will continue to give Sterling a shot in the arm (I know I know), consumer confidence will return with the re-opening of the UK economy and the extension of the furlough scheme will ward off any short-term rise in unemployment. Granted, this will need to be tackled at some point and it is inevitable unemployment will rise. The awful phrase ‘new normal’ will indeed need to be navigated and the impact of changing work/home patterns won’t feed into the economy until Q3/Q4. Interest rates and the threat of inflation will continue to be talked down by the Bank of England and this should provide Sterling with an opportunity for upside. On Thursday we have the ECB Monetary Policy Statement and Press conference. I expect the Euro to remain under pressure with a slow pace of the vaccine rollout and the recovery of Europe set to lag the UK and the US.

Sterling/Dollar has taken its foot off the gas in recent trade. The Dollar has had some wind in its sails with US growth expectations boosting the dollar. The US stimulus package is set for approval and this should give the Dollar further support. The NFP (Non-Farm payroll) figures out Friday surprised to the upside with a print of +379K. Sterling is in for a bit of a short term scrap with the Dollar with US yields resuming their climb higher and the Fed not showing much interest in intervening. Will Cable(Sterling/Dollar) regain 1.40? I would expect us to remain around 1.37-1.39 short-term with another push higher for Sterling in the coming weeks with the continued vaccination of the UK public proving a catalyst to getting UK PLC open.

In terms of recent movements you can view in the graph below –

If you have a requirement to convert USD into GBP and can achieve under 1.40 I would look to cover some of your exposure on SPOT or a Forward Contract. Might we dip lower? Possibly. However, we have seen this year how quickly movements in GBP/USD can occur. Please reach out to a member of the trading department and they can discuss your specific requirements. Buying USD? Look at implementing some take profit orders to the upside should we see a break higher. I would though caution that the dollar is showing some strength so this may push GBP/USD to the downside short-term so take some risk off the table and cover some of your requirement on a SPOT basis.

If you have any questions around your requirements feel free to reach out to me directly.

Have a fantastic week

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.

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