ACM Update Monday 20th April 2020

Sterling is running out of steam. Ongoing concerns around the UK strategy on coronavirus and Brexit talks are limiting the upside for GBP.

Where now for Sterling? It seems as indecisive as those of us trying to find something new to watch on Netflix. As I said last week I don’t expect much upside for GBP short-term. We have tried a few times on Cable (GBP/USD) to sustain a break above 1.25 the figure although have given up those gains and now trade a little under that level. Downside bias remains short-term. If you hold US Dollars and need to move into GBP target specific levels over the coming weeks. You can discuss technical levels with our trading department so please do make a point of getting in touch. If you would like a member of the trading team to drop you a note please let me know directly.

You can view the recent movements in the graph below –

In terms of data released this week we have the UK ILO Unemployment rate (3M) out Tuesday. We expect a print of around 3.8%. These figures won’t take into account the impact of coronavirus. When we do have that data then it could make for extremely unpleasant reading. Estimates vary wildly on the numbers although it is safe to assume that we have hardship coming our way. In addition to this release we have inflation data released on Wednesday in the form of CPI (YoY) (March) with expectations of a print of 1.7%. With UK GDP expected to plummet in Q2 then Sterling is going to be on the back foot. Whilst the US has their own sizeable problems to contend with the dollar will hold its safe haven status for investors. This should translate to a fall in GBP/USD in Q2.

In terms of GBP/EUR there may be some glimmers of light to the upside. Perhaps.

You can view the movements in GBP/EUR in the graph below –

This would be more to do with Euro weakness than Sterling strength. The north/south divide in the Eurozone continues to thwart a coherent economic response to coronavirus. Will there be a roll out of common Euro Bonds (called for by the southern economies) to demonstrate a willingness to work together, not just economically, but politically? The EU is meant to be one collective although it very much seems a two tier organisation at present. Should the economic response continue to be slow then we may see a sell off on the EUR that could help drive GBP/EUR higher. I think Sterling is undervalued at present although once we see the full impact of coronavirus on UK PLC things may look rather different.

At least the birds are chirping and the sun is out. If you have any questions around your specific individual FX requirements please get in touch with the Aston team.

Have a good week.

Stay safe

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.