A New Year commences and the age old question remains. No, it’s not ‘How long will it take to break those completely ridiculous and unachievable resolutions for 2014’. It is of course, will Sterling push substantially past and through the 1.20 level this year against EUR? I would suggest we will trade in a range from 1.17 to 1.23 this year. If you haven’t already covered off your Q1 exposure please get in touch and we will come up with a suitable strategy for you. If you can achieve 1.20 on a market order or forward contract basis I would suggest it may be worth considering covering off 50% of your Q1 exposure at this rate of exchange. Might it go higher in the next few months? Quite possibly. Might it come off by a couple of percent? We all know how resilient the single currency can be so we could conceivably be back in the 1.17s without too much of a push. Speak with one of our trading team to discuss your individual requirements.As suggested towards the end of 2013 I don’t see the climb in Sterling against the US Dollar continuing at the pace it has in recent months. The data out of the UK has been positive and there has been a feeling that 2014 is going to be the year when the UK economy surges ahead into prosperity once again. Whilst I believe 2014 will prove another step in the right direction there will be peaks and troughs along the way. George Osborne, Chancellor of the Exchequer, has been trying to play down the recent wave of optimism and you can see that in Sterling’s third day in a row fall against the US Dollar. Osborne will outline plans for 2014 later today so we will have a better understanding on his thoughts on fuel duty, income tax, lower job taxes for employers etc. I do expect him to maintain the push to make further cuts to reduce the deficit. I expect this to be the key part of the speech with him saying that there are many challenges still ahead before a recovery takes place.
Central Bank Policy? Interest rates will remain at 0.5% and the asset purchase program at £375 Billion. Might interest rates rise in 2014? Possibly, however it will be the end of Q3 beginning of Q4 if that was to occur. The unemployment rate of 7% has been used as a benchmark to consider interest rate rises. A well respected Sunday Newspaper has cited some economists as saying the Bank of England Governor, Mark Carney, is considering lowering the rate they use from 7% to 6.5%. We will know more in the upcoming weeks.
What range do I think we’ll trade this year on GBP/USD? I will suggest 1.55 to 1.65 this year. It’s not a very exciting or bold statement to say it will trade in much the same range as 2013 however I don’t see a fundamental change or strengthening in either of the currencies and economies for the year ahead. Gradual improvement yes, fundamental change no. We may see some spikes above 1.65 however with the US going to continue to taper throughout 2014 I can only see a bout of US Dollar strength if anything pushing us back below 1.60 again. This will be the key support and resistance level for 2014 on GBP/USD. If you can buy above 1.60 I would suggest you’ll have secured at a good level for 2014. Have you considered locking in a forward contract for your Q1 exposure? If you purchase at say, 1.60, on a forward contract basis for 3 months you have guaranteed that rate of exchange irrespective if the rate goes up or down. Should the rate go higher and you need to purchase USD you can always do this on a Spot basis to achieve the higher rate of exchange. You can use up the Forward contract at a later date. If the rate goes below where you locked in your forward contract at you simply use up the forward contract. If you would like to discuss levels then either get in touch with myself or one of the trading team.
There is a substantial amount of data out this week ranging from the likely confirmation by the US Senate tonight (22.30 UK Time) of Janet Yellen as the new Federal Reserve Chairman to CPI data to unemployment data from the Eurozone and interest rate decisions out of the UK and the Eurozone later in the week. If you would like a full breakdown of the Economic calendar please let me know. I expect there to be a lot of movement this week in currencies with investors getting their feet under the desk once again. We will see some substantial intraday movements on a number of key currencies so if you have a requirement this week to purchase or sell currency the implementation of market orders may best suit your needs.
If you have any questions please do let me know.
Have a fantastic week and best wishes for 2014
Written by Liam Alexander.