Where now for GBP/EUR? As suggested last week we have had our push higher and with some UK number’s disappointing to the downside it has put Sterling under pressure with GBP/EUR coming off recent highs. I would expect a week of range bound trading unless we see a significant announcement from either the BoE On Thursday (unlikely) or Draghi says something at the ECB Press Conference. The single currency has been under pressure this month however as we all know too well it is stubborn as old boots and doesn’t give up ground without fight. To this end, I would look at covering off some of your exposure on a SPOT or Forward contract basis on GBP/EUR. If you’re waiting for that considerable jump higher then I don’t think you’ll see that until September/October. With reduced liquidity over the summer period (and the fact that volatility isn’t what it once was due to the main Central Banks’s monetary policy) then I would suggest contacting your Aston Trader to lock in a rate of exchange on either SPOT or a Forward Contract out for 1/2/3 months. Please contact myself or one of the Trading Team and we’ll be happy to assist.GBP/USD? We’re now on the back foot with the pair under pressure. At the start of the month the Dollar was the worst looking in an ugly parade however it finished up the month being 1.7% higher against Sterling. I would expect broad US Dollar strength now for the remainder of the year. As I‘ve said all year, in Q3/Q4 we’ll see the US Dollar strengthen significantly. I stick to my forecast that GBP/USD will be under 1.60 by the end of 2014. The recent FOMC statement showed that the US economy was gaining strength, the Q2 GDP report showed that the economy was growing at a stronger than expected 4% annualised rate too. However, this was tempered by a slightly disappointing US employment report on Friday so it may be a mixed week for the US Dollar with a period of consolidation likely.
For those of you whom convert GBP into USD I would look to secure as much as you can at these levels. If we look back a year to see where we were on 4th August 2013 what level do you think we were at? We were trading at around 1.52/1.53. That is well over 10 cents difference to the pound compared with current levels. A fairly significant difference I’m sure you’ll agree. Can you afford for GBP/USD to drop back to those levels and what would that do to your profit margins? I would suggest you mitigate those risks by implementing a strategy to the year end to make sure you don’t lose should GBP/USD come under further pressure. Please contact me to discuss. If you have the capacity to lock in more USD up until December I would, as the saying goes, “fill your boots”. I think Cable looks toppish and I don’t see much that suggests it has the wind in its sail to drive it higher again.
We’ve a fairly subdued week ahead in terms of data releases however as alluded to above Thursday will be the main day of the week with the BoE Interest rate decision/Asset Purchase Program released (both non-events at the moment – they’ll remain unchanged). Europe will be the focus this week and the Monetary Policy Statement followed by the conference given by Mario Draghi will provide the volatility, if we are to have some this week. Of course, ongoing Geo-Political events around the world will continue to affect currencies and with further sanctions expected to be imposed on Russia from Europe there may well be some weakness or strength for the Single currency depending on how the market interprets any “show of strength” from Europe. It is interesting times and although volatility isn’t great at the moment there can still be some significant movements on an intraday basis. I would suggest, if you haven’t already, putting a plan in place for the remainder of the year and cover off your exposure, especially if you are a USD buyer. As someone once said “doing nothing is speculating”. I would act and make sure come December time you aren’t kicking yourself that you didn’t lock in some of your USD at these levels.
On the other side of the coin, for USD sellers, please contact one of the team to discuss implementing market orders to take advantage of the downside moves. I would stagger the amounts you have to do at different levels so you offset some of your risk whilst taking advantage of the likely Dollar strength. Please contact one of the team and they’ll be happy to discuss relevant levels.
If you have any questions please don’t hesitate to contact us.
Have a great week
Written by Liam Alexander