Last week the US Dollar was as frenetic as Beyonce at last nights Superbowl. Will the US Dollar steal the limelight this week and stage a rebound, or will it be cast in the shadows as Coldplay seemed to be as they were mistaken for Maroon 5?
We are now trading at pivotal levels on GBP/USD and GBP/EUR. Where do we go from here? Up or down? If we look at last week we had ‘Super Thursday’ and the release of Non-Farm payrolls from the US on Friday.
In the UK rates were held at 0.5% and the MPC (Monetary policy committee) voted unanimously to hold rates at current levels suggesting a rate hike is a long way off. The Bank of England Governor, Mark Carney, flagged weak global growth and the slowdown in emerging economies as being risks to the UK. Indeed, he suggested that the fall in Sterling of around 3% over the past three months reflected global growth concerns, lower rate expectations and also the political and economic uncertainty surrounding a potential ‘Brexit’. Inflation and growth forecasts were cut in the UK with growth expectations down to 2.2% from 2.5%. Inflation forecasts are also down with inflation seen below 1% this year.
What does the above suggest for Sterling? Well, to me, it suggests Sterling isn’t going to be heading substantially higher anytime soon. If you are a USD buyer I would consider locking in a portion of your US Dollars at current levels. As the graph details below on GBP/USD there has been a rebound from just below 1.42 to current levels. I think that is a short-term bounce rather than a sustained change of direction and downside pressure still remains for GBP/USD. Can you afford for it to be under 1.40? Please contact myself or one of the trading team for a SPOT price.
GBP/EUR? We’re below 1.30 again. The graph below details last week’s activity on GBP/EUR and you can see we need to see a sustained move above 1.3285 to give us a clear indication of an upside move. I do think we’ll move higher on GBP/EUR due to the fact EUR/USD has had a push from the 1.07’s to the 1.12’s in a short space of time so I see some EUR weakness coming into play soon. Will it translate to a move back to 1.40 anytime soon? Not for me it won’t.
US Non-Farm Payrolls
The US economy added fewer jobs than expected in January with a consensus figure of 191K jobs expected. 151,000 jobs were added so that figure disappointed the market although wages rose and the unemployment rate fell to an 8 year low of 4.9%. The reason I think ‘only’ 151K jobs were added is that the US has been adding so many jobs of late and their unemployment rate is now below 5% so it is inevitable there is going to be a slowdown in the number of jobs added due to the pace they have been added to date.
This week is quiet on the data front with the main highlights being the Federal Reserve’s Janet Yellen testifying before Congress, the NIESR GDP Estimate (3M) (Jan) out of the UK and out of the Eurozone we have GDP data on Friday. Whilst I don’t expect a massively volatile week there will inevitably be movement in a number of currencies. Please have a plan in place to mitigate any risk you have this week and should you have any upcoming FX requirements please let a member of the Aston team know.
If you have any questions please let me know.
Have a great week.
Written by Liam Alexander