Our American friends across the pond will be indulging not in food today after their feast yesterday for Thanksgiving but that of retail therapy. Yup, Black Friday is here again. Expect to see queues of people waiting outside shops and running around like lunatics when the doors are opened. The purchase of that gadget just couldn’t wait a few more days. It’s perhaps a good thing however as the US Dollar has taken quite the hit of late against Sterling. With retail sales and consumer consumption being the bedrock of the US economy they’ll hope for a bumper day at the tills. The US Dollar is down against the majority of currencies. The move in ‘Cable’ (GBP/USD) has been mostly driven by Sterling strength however. Why? Confidence seems to have returned to the economy with the Bank of England Governor Mark Carney trying to stave off a housing bubble by putting the funds from The funding to Lending scheme to where they were originally meant to go; that of small/medium businesses and in turn create jobs. Under his stewardship growth forecasts have been raised (0.8% through September – quickest among the G7) and he has intimated that interest rates may rise quicker than previously anticipated, subject to the unemployment rate. Sterling rose to its strongest level since January against USD. Seven months ago we were talking about a triple dip recession. How things can change. I’m bullish on Sterling however perhaps not quite as much as some commentators. Call me cynical but Sterling has given me false hope before; very much like my football team. Those of you that placed Market orders and Forward contracts have secured at the best levels of the year and those that have taken care of 2014 exposure have covered off your risk and secured at the top of the trading range.If you haven’t yet booked a forward contract or placed a market order on GBP/USD please contact me to discuss implementing these.
GBP/EUR? We’re still flirting with the nemesis of 1.20. As suggested in previous reports we don’t hang around long at 1.20 and we need a sustained push to the upside to break through this resistance level. Look at placing orders at 1.20. We had mortgage approval data out of the UK this morning that came under expectations and coupled with better than expected unemployment data out of the Eurozone along with better than expected inflation data in the form of CPI this has pushed GBP/EUR to the downside. We have some Italian data released today however that isn’t going to cause much volatility so I expect today to be quite range bound on GBP/EUR.
With levels on GBP/EUR and GBP/USD being among the best of 2013 I suggest, and it’s only a suggestion, that you look at locking in a rate if you have the capacity to do so. Might the rates move higher still? Of course. However, and as most of you know, they can quite easily move downwards by a couple of percent in a matter of hours/days. I would always side on the risk averse approach and as someone far more qualified than I in Foreign Exchange once said “doing nothing is speculating”.
If you have any questions or would like to discuss your upcoming requirements and how to put in place an effective strategy to mitigate your currency risk please let myself or a member of the trading team know.
I imagine the majority of readers will be doing some kind of Christmas shopping this weekend. A weekend of joy beckons, he says sarcastically.
Have a fantastic weekend
Written by Liam Alexander.