ACM Update 04-04-22

Taming inflation is the order of the day in the UK, Europe and the US. Indeed, it is now a global concern with rising commodity prices impacting every economy. In the UK, the cost-of-living crisis is likely to get a lot tougher before it improves. Will the UK keep raising interest rates or will they take the foot off the gas a little? I would expect them to slow the pace to a steady stream of rate rises rather than 50bp hikes as some previously suggested. Policymakers will take a wait and see approach due to recent economic releases and the ongoing conflict in Ukraine.

Indeed, a slowing of economic growth coupled with rising prices is going to be the narrative for a while yet. ‘Stagflation’ will be mentioned just as much as ‘transitory’ was last year. Policymakers have their work cut out to get UK PLC back on track.

Sterling got a bloody nose last week. From a GBP/EUR perspective we were trading over 1.20 the figure and came down to 1.1748. Sterling has since recovered some ground and is now taking strides to retake the psychological level of 1.20. If you hold EUR and need to move back into GBP it may be prudent to lock in some on a SPOT basis. If you would like a rate of exchange, please reach out to the dealing department.

You can view last weeks movements in the graph below –

If you would like a conversation around your hedging requirements, you can speak with our Corporate and Institutional desk who can go into detail around flows and pricing.

From a Sterling/Dollar perspective you can view the recent movements in the graph below –

Sterling has rallied higher against the Dollar in Monday trading and is largely a retracement of the losses from the US NFP (Non-Farm Payrolls) release. Whilst the headline figure missed expectations if we look at the number of 431K+ compared to pre-pandemic numbers the labor market is in a healthy position. Wages are rising and that feeds into inflationary pressures that will likely solidify a 50bps hike from the Federal Reserve in May. This should in turn feed into Dollar strength.

If you have any upcoming requirements that need to be hedged, please reach out to the team at Aston and we would be delighted to assist. The Dollar will continue to be well supported as a haven with the continuing conflict in Ukraine having wide ranging ramifications so we may see Cable (GBP/USD) have a slight downside bias this week.

Notable Economic releases for the week ahead:

Monday US Factory Orders

Tuesday EU Services PMI; US ISM Services PMI; UK Services PMI

Wednesday US March FOMC minutes; UK Construction PMIs; EU Feb PPI

Thursday EU Feb Retail Sales

Friday UK Construction PMI