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ACM Update Tuesday 27th July 2021

Team GB are off to their best start in games history in Japan with ten medals to date. Tom Daley made a splash with his first Olympic Gold. Will Sterling take a dive this week or will it gently drift along?

Sterling has traded from just under 1.36 the figure to the early 1.39’s over the past month. Sterling seems capped at the psychological level of 1.40 and I don’t see a major shift in either direction in August. Indeed, Sterling is currently bobbing along in the middle of this range at present. You can view the recent movements in the graph below –

The removal of Covid restrictions is still a major focus as to the effect on economic activity in the UK. Whilst ‘Freedom day’ was yet another catchy phrase it certainly didn’t herald it. In terms of some UK data from last week PMI's came in slightly worse than expected whereas UK consumer confidence posted a 17-month high, and June retail sales increased 0.4% compared with expectations of a slight decline. Retail sales are defying expectations of a second monthly decline in June, despite the potential diversion of consumer spending to leisure vs shopping.

Bank of England MPC member Haskel stated that inflation would remain high over the next few months, but also expected that most of the pressure would be temporary. The word ‘transitory’ is very much in vogue. He also expressed caution over the outlook, especially given concerns over the Delta variant and a tightening of fiscal policy. In this context, Haskel stated that it would be a mistake to tighten economic policy at this stage.

If you hold USD and need to move into GBP I would look to take advantage of the current rates. At the beginning of June we were over 1.42. If you would like a conversation around technical levels to achieve and current SPOT pricing please reach out to a member of the trading department. They will be able to discuss your individual requirements in detail. There isn’t much data of note out of the UK this week so Sterling will likely be at the whim of other currencies. Indeed, the main event/release of note this week is out of the US with the FOMC (Federal Open Market Committee) meeting. Will it be a hawkish stance in terms of tapering and an upbeat outlook on the economy? Or will the health concerns around the spread of the delta variant subdue the tone to a more dovish outlook? If you hold Sterling or USD it would be worth a conversation with one of our traders to make sure you are appropriately hedged to protect yourself from any potential downside whilst allowing yourself the benefit of any upside. If you would like one of the team to get in touch please contact me directly.

In terms of Sterling/Euro we have traded from a low of around 1.1535 to a high of just over 1.1750 over the past month. The ECB (European Central Bank) was in focus last week. Rates were kept at record lows although the door was left ajar for future changes. The ECB President, Christine Lagarde, warned that the spreading delta variant is a risk to the Eurozone’s recovery. You can view the movements of GBP/EUR over the past week in the graph below –

Where now for Sterling/Euro? Off the deep end or a bounce from a springboard higher? I don’t expect too many waves in either direction. There is little data of note out of the Eurozone this week so I expect bouts of range bound trading. We are trading towards the upper end of the yearly range at present so if you can have a requirement to purchase EUR from GBP it may be prudent to lock some in on either a SPOT or Forward Contract basis. If you are holding EUR and need to move back into GBP it may be worthwhile looking at staggered take profit orders to take advantage of any downside in Sterling. If you would like some guidance around your upcoming requirements please reach out to the Aston trading team and they can put a strategy in place for you to mitigate your currency risk whilst allowing for upside potential.

Coronavirus and Government decisions from a health and economic perspective are going to largely dictate the direction of travel for currencies this year. How the landscape will look for UK PLC in Q4 and indeed into 2022 is going to be an interesting watch. From a currency perspective please make sure you have a plan in place to protect yourself from any adverse and significant moves. I expect quite a few bumps in the road before the year is out.

If you have any questions please feel free to reach out directly.

Have a great week

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.

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