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ACM Update Monday 9th August 2021

The British summer continues to amaze in its own unique way. With ‘staycations’ largely the holiday of choice for the British public this summer the universe is having a wry chuckle. Apparently a heatwave is on the way; I think there’s more chance of seeing a kayak go past a fifth floor window.

Will Sterling drown under the weight of Dollar strength this week or will a ray of sunlight shine on GBP?

You can view the recent movements in the graph below -

Sterling/Dollar - one week

The US jobs report last week showed an addition of +943K jobs. This came in above expectations for a print of +870K. Conditions in the labor market are now improving in the US with unemployment dropping from 5.9%to 5.4%. We have the Federal Reserve meeting this week and with the strong jobs data there will be further calls for a tapering of asset purchases by the Fed later this year. The Jackson hole symposium at the end of August may provide us with some language around tapering although I don’t think there’ll be any definitive announcement. With the spread of the delta variant and concerns around the continuing impact of that I think we’ll see the dollar maintain its safe haven status for now. This should feed into a stronger dollar, especially against the Euro. Against Sterling short-term? I think it’ll be a bit of a scrap between GBP and USD with no real winner so relative range bound trading may persist with risks slightly to the downside. If you hold USD and need to move into GBP consider implementing some take profit orders to take advantage of any intraday moves. If you would like to discuss technical levels please get in touch with our trading department.

We have a first look at UK GDP (QoQ) (Q2) on Thursday with a print of 4.8% expected. The previous print was -1.6%. If we see a figure with a 5 in it then Sterling may take a march higher. If you have a requirement to purchase USD from GBP please make sure you’ve had a conversation with the trading team. They can put a strategy in place for you that will allow you take advantage of any upside whilst protecting you against any adverse moves south. If you would like a call to discuss your specific requirements please let me know directly. We have some other data releases this week out of the UK in terms of industrial production and manufacturing production although the GDP figure will be the one that will be most keenly watched.

In terms of Sterling/Euro we are trading around 1.18 the figure. Could we see a push towards the psychological level of 1.20 this month? Potentially yes. EUR/USD is on the back foot with USD strength giving the Euro a bloody nose in recent trade. Should we see a continuing string of improving UK data then I think there’s the potential for further upside. If you hold Sterling and need to purchase Euro consider implementing take profit orders to the upside to execute on either a SPOT or Forward basis.

You can view the recent movements in Sterling/Euro in the graph below -

In terms of data out this week from a Eurozone perspective it is extremely light. I don’t see too much good news coming out of Europe short-term so I think GBP should fare rather well short-term. However, risks to GBP are that all our vaccine rollout good news is now priced in so it may limit any strong moves to the upside. On balance though, I see GBP pushing higher against EUR. If you hold EUR and need to move back into GBP it may be prudent to look at SPOT pricing and cover off a percentage of your overall exposure at current levels to mitigate any further adverse movements. If you would like SPOT pricing please reach out to your point of contact at Aston and they’ll be able to provide you with rates.

If you have any questions please feel free to message me directly.

Have a fantastic week

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.

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