The ECB meeting surprised markets with a less than aggressive package of easing measures last week. Indeed, it was as underwhelming as sitting in the collections department of John Lewis on Oxford Street on a Sunday afternoon.
What now for the Euro? It rose between 2.5-3% against both Sterling and the US Dollar towards the end of last week and the ECB meeting has provided some respite for the single currency that has been under pressure since mid-October. Could we potentially see GBP/EUR drifting lower going into year end? Quite possibly, although short-term I expect GBP/EUR to regain some of the losses it incurred last week. If you are a buyer of Euro’s please look at implementing a market order at 1.40 the figure. Mark Carney, the Bank of England Governor, is expected to keep UK rates on hold this week with BoE rate setters likely to vote 8-1 to hold rates at current levels of 0.5% so don’t expect too much of a boost to Sterling from this. Carney is expected to raise rates mid next year although early 2017 has now been mentioned as likely.
Sterling is sitting in the middle of the see-saw between a divergence in monetary policy with the ECB sitting low on one side and the Federal Reserve sitting high on the other. With the Non-farm payroll figure released on Friday posting strong gains I think it’s now inevitable that Janet Yellen will raise rates at the December 16th meeting. The Fed has always been data driven so the NFP figure put the cherry on the cake for the Fed so expect to see lift off next week for the first time in a decade. What will this do to the US Dollar next week? The Dollar will strengthen next week and we’ll be back under 1.50 the figure going into year-end on GBP/USD. How does a rate under 1.50 affect your business? Please contact myself or one of the trading team to discuss your requirements. Indeed, with the European referendum coming into focus next year then Sterling may come under increased scrutiny in 2016 so we may see GBP/USD coming off quite substantially. It may be an idea to look at your Q1 exposure and requirements now and utilise a forward contract to mitigate the expected upcoming fluctuations in Cable (GBP/USD).
The markets are relatively quiet on the data front this week with the Bank of England meeting likely to be a non-event. The main releases will be GDP (Q3) figures out of the Eurozone tomorrow and Retail Sales out of the US although expect a slightly subdued tone to markets early this week. I imagine we’ll be in wait and see mode until the Fed’s meeting next week.
If you have any questions please let me know.
Have a great week.
Written by Liam Alexander