ACM Update Tuesday 23rd February 2021

We have some dates to work from to bring us out of lockdown. The joys of spring may indeed be round the corner. Sterling continues its upward trajectory on the back of the plan and the continued success of the vaccine rollout. Where now for Sterling?  As the singer Yazz said “the only way is up”. Well, for now at least.

Sterling has wind in its sails. Vaccine disparity between the UK and the EU continues to prove a catalyst for the recent upside in GBP against the single currency. We’re up close to 7% over a 3 month period. Indeed, in the past week there’s a gain of more than 1%. You can view the recent movements in the graph below –

 

If you have a requirement to purchase EUR from GBP please do consider locking in some of the recent gains on a SPOT or Forward Contract. Do I think there’s more to run in the move? Should we see the expected economic boom that a full release from lockdown will provide in June then going into Q3 and Q4 there may well indeed be further gains for Sterling against the Euro. With the EU’s lethargic rollout of the vaccine they’ll be behind the UK in getting the economic wheels turning again. Please get in touch with a member of the trading department and they can discuss implementing take profit orders for you to capture any further upside over the coming months should we see current trends continue.

Sterling was supported slightly this morning in terms of jobs data. Unemployment rose slightly to 5.1% from 5% although this was in line with expectations. We had better than expected figures in terms of the claimant count and an increase in UK wages in December. If you hold EUR and need to move into GBP consider covering off at current levels as I do think Sterling/Euro will climb higher.

In terms of Sterling/Dollar the climb continues. We’re now settled above 1.40 the figure with a decent support now in place. Indeed, we’re up around 6.5% over the past 3 months from a low of just under 1.32. I expect Cable (Sterling/Dollar) to continue higher. If you have a USD/GBP requirement look to cover off a percentage at current levels. You can view the movements in the graph below –

 

Over the coming months I expect 1.45 with a potential push to 1.50 by year end. Of course, there are numerous factors that could swing us off course although I expect this to be the last UK lockdown and we’ll be ahead of the curve in ‘getting back to normal’. USD will continue to remain under pressure. All eyes are on Jerome Powell, the Federal Reserve Chair, this week with bond yields and inflation fears making the hearings more of an event. He will try and bring reassurance to markets as yields have gone up with the expectations of further US fiscal stimulus to bolster the economic recovery that has in turn stoked inflation worries prompting a sell off in a number of stocks. I’d expect a balancing act from the Fed.

With the Trump era over, an end in sight to the global pandemic and the new reality post Brexit could we be in line for a period of relative calm come the end of 2021 and into 2022? We may well go back on a growth phase with monetary and fiscal policy more keenly observed rather than twitter comments.

Clearly there are still massive issues to contend with this year that will have a knock on effect for years to come. The next few months will remain arduous and indeed chaotic from a market perspective. Please do get in touch with the team at Aston to help you navigate the emerging new realities that will ultimately shape the direction of the currency markets. The team are on hand to deal with any questions or queries that you may have.

Should you wish to set up a video conferencing call with a member of the team to discuss any specific issues feel free to reach out to me directly and we can set that up for you.

Have a fantastic week

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.