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ACM Update Tuesday 23rd March 2021

Sterling is on the back foot this morning. Mixed jobs data out of the UK and the escalating squabble with the EU over AstraZeneca has pushed GBP lower against the Dollar and Euro. Further to fall or will Sterling weather the storm and regain lost ground?

Today marks a year since the first UK lockdown was called. It is also ‘tax day’. A truly joyous day I think we can all agree. HM Treasury will potentially lay the groundwork for possible tax changes in the future through a release of various documents that were held back from the Budget. It will make interesting reading, if you like that kind of thing. The pandemic needs to be paid for somehow. We should receive an idea of how painful the payment will be in due course.

Dollar strength is adding to Sterling’s woes and pushing Cable (GBP/USD) to a six week low. You can view the movements in Sterling/Dollar in the graph below –

 

Whilst there are positives and negatives around Sterling it is one way traffic for USD. Indeed, a potential $3 trillion infrastructure program in the US is helping to boost the dollar. We have the US Treasury Secretary Janet Yellen and the Fed Chair Jerome Powell speaking before Congress where we’ll get a better handle around expectations for the future and current conditions. Inflation will come under the microscope in light of huge expenditure on top of the $1.9 trillion coronavirus relief package. From a UK perspective we have the Bank of England Governor, Andrew Bailey, speaking where we’ll hear the outlook on the UK economy. Expectations are for a robust rebound in the economy once UK PLC opens properly for business although I wouldn’t be doing any cartwheels quite yet. We have UK inflation data out tomorrow in the form of CPI (YoY) (Feb) where expectations are for a print 0.8%.

If you are holding USD or EUR and need to move into Sterling look to take advantage of the recent moves. Consider locking in some on a SPOT basis and should you think there is further to run in the move we can implement take profit orders for you at staggered levels. If you would like to have aconversation around your specific requirements please get in touch with me directly or a member of our trading department.

On the Sterling/Euro front we are trading under 1.16 the figure. You can view the recent movements in the graph below –

I expect this downside move to be relatively short-lived with Sterling regaining the upside in the coming weeks. Vaccine disparity is still a key short-term driver between GBP and EUR. Over half the adult UK population have now received their first jab. I expect the UK economy over the coming months to begin to rebound compared with Europe whom are entering another wave with a far lower number of the population vaccinated. I expect the UK economy to outperform the Euro area this year. We are relatively light on data from the Eurozone this week although we do have the ECB President Christine Lagarde speaking and a European Council meeting rounding off the week on Friday.

Evidently there are still numerous headwinds to UK PLC although there seems to be some shreds of light coming through. We all know currencies swing wildly so please make sure you have a plan in place to mitigate your downside risk. If you would like to chat anything through around pricing, hedging, execution or strategy feel free to reach out directly.

 

Have a fantastic week

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.