Hurricane Ophelia is likely to cause some damage this week. The UK’s negotiating team will probably do more damage in Brussels though. We’re off to break the ‘deadlock’. We’re only over a year in on talks so that’s comforting to know. Out the traps early. The lot we’re negotiating with aren’t much better.
Where is Sterling likely to go against the Euro over the remaining months of 2017?
You can view the movements on the graph below last week –
We have a heavy data calendar from the UK this week. Retail Sales, employment and inflation data, and we also have the Bank of England Governor, Mark Carney speaking. Interest rates are likely to crop up with a November rate hike of 25 bps looking extremely likely.
Sterling rallied towards the end of last week with optimism on Brexit. Really? I’m not that optimistic. Apparently there has been real signs of progress. Michel Barnier, the EU negotiator in chief, has said he’s open to a two year transition deal. Like Hurricane Ophelia, his view could change direction and course at any time.
Will Sterling come off or rally against the Euro? We have inflation data out this week that is expected to print 3%. Some letter writing will need to be done from Mark Carney to the Chancellor, Philip Hammond. Should we see a print of 3% then this should give us a firm indication that interest rates will rise in November. This should translate into a push higher on Sterling. If you have a requirement to convert GBP into Euro please get in touch with our trading team. We can look at structuring market orders for you to take advantage of any spikes in the market. With politics back in vogue in the Eurozone, from Germany to Catalonia and Spain, the Euro may see some further pressure. Please contact us to discuss your upcoming requirements to mitigate your currency risk.
Whenever there is such a thing as a ‘sure thing’ it often turns out to be not a sure thing. Everyone is now pricing in Sterling/Euro to rocket higher. Will it? People have been saying that all year. I am still Sterling negative in the run up to Christmas. Dear lord, I mentioned Christmas. Brexit and UK politics are going to hinder Sterling. Whilst interest rates are likely to rise UK productivity figures certainly aren’t. The UK is going to be in for a period of low growth for at least another 12-24 months. Sterling is going to rally on the back of some positive data news stories although I expect the trends to be short-lived. If you are a seller of Euro’s against GBP firstly take advantage of where rates are now and lock in some on SPOT. Might Sterling/Euro move lower? Absolutely. However, lock in some now and then you give yourself a price point to work from. Please contact the trading department for a rate of exchange. We can then discuss a strategy with you for your remaining amount of exposure over the next few months.
We said at the beginning of the year that we expected Cable (GBP/USD) to finish around 1.32 end of year and we maintain that forecast. The Dollar has been under a little pressure with the FOMC being slightly dovish. A December rate hike is still likely although inflation is proving a thorn in the Fed Chairpersons side. I would expect the US Dollar to strengthen slightly going into year end from current levels although not by much.
You can view the movements on GBP/USD last week on the graph below –
If you are USD buyer from Sterling cover off a significant amount at current levels. I don’t see it moving much higher. Please contact the trading department for a SPOT rate. I expect Sterling to drift lower so that will bring the Cable (GBP/USD) rate down. If you hold USD I would look at staggering market orders to the downside to take advantage of moves lower. Please contact the trading department to discuss appropriate levels to aim for.
Every week now in currency markets there are large moves rather than the small price movements we used to see. Please make sure you have a plan in place to negate these shifts. Movements of 1% are now common and that can have a significant bearing on your annual FX rate.
If you have any questions please do let me know.
Have a fantastic week.
Written by Liam Alexander