Drum roll. The voting for the Conservative Leadership is almost over. The revolving door will usher in the new Prime Minister tomorrow and they will take over on Wednesday. With Boris Johnson expected to win that could mean our Chancellor Philip Hammond exiting. Music and the Titanic comes to mind.
This week politics will again be a key driver for the embattled Pound. Whilst the expected heatwave will bring a smile to the face any thoughts of Sterling having a day in the sun any time soon may be a wish too far. There may be the occasional bounce on an intraday basis for Sterling although the outlook over the summer months still has a negative bias.
You can view the recent movements on Sterling/Dollar on the graph below –
As you can see we dipped under 1.24 the figure last week. That was the lowest level since March 2017. We have since had a slight rebound although I think we will struggle to breakthrough 1.25 and sustain the break higher.
There isn’t much data out this week. We have the FPC (Financial Policy Committee) minutes out tomorrow from the Bank of England although this will be overshadowed by politics. On Friday we have Preliminary GDP Annualised Q2 from the US. We expect a print of 1.9%. Should we see a more positive number then we would expect the Dollar to regain the ascendancy. Expectations for the Fed meeting later this month is for a cut in interest rates. I’d expect a 25bp cut as I’ve mentioned previously. If you have an upcoming USD requirement consider a SPOT trade at current levels. Historically, we are at fantastic levels. I do think there is more to run to the downside in GBP/USD so consider a market order at 1.2450 and 1.24 over the summer months. These would be great levels to execute at. Could Sterling/Dollar conceivably trade below 1.20 this summer? Possibly although I think we’ll meet a large amount of resistance at that level.
If you need to purchase USD from GBP then yes the rates aren’t particularly great. However, if there is a ‘No deal’ Brexit in October we could trade at 1.15 or even below that level on Cable (Sterling/Dollar). I would consider covering off some of your exposure at current levels. Please contact the trading department for a rate of exchange.
You can view movements in Sterling/Euro on the graph below –
Sterling/Euro dropped down to the mid 1.10’s in trading last week. It has recovered slightly and we are now back above 1.11. If you are holding EUR and need to move back into GBP look at doing a large percentage of your exposure on a SPOT basis at current levels. We are trading towards the top of the range over the past 6 months so make sure you take advantage of the recent moves in your favour. Please contact the trading department for a rate of exchange or to implement a take profit order.
If you’re purchasing Euro’s then at present it is a case of keeping you above 1.10 the figure. I don’t see any potential for a large rebound unfortunately over the summer months. As always, Sterling is at the mercy of politics and the outcome of Brexit. We have the ECB interest decision out on Thursday followed by the ECB monetary policy statement. Rates will be left on hold and I’d expect Draghi to be relatively dovish.
Expect some event risk this week around the Conservative leadership announcement. I would expect volatility to return and I would expect it to increase dramatically towards the end of the summer. Please contact one of the team to discuss your individual requirements.
If you have any questions please let us know.
Have a great week and enjoy the sun!
Written by Liam Alexander