ACM Update 23-01-23

As the quote in the movie Shawshank Redemption goes “Hope is a good thing, maybe the best of things”. UK PLC is still on shaky ground and confidence remains fragile at best. However, sentiment seems to be changing slightly. Sterling recorded a 7-month high against the Dollar last week. We are sitting in the 1.24s. Will the upside continue, or will we be capped at 1.25?

You can view movements in the graph below –

A slowing US economy (we had weak retail sales and industrial and manufacturing data in Dec) may provide for some volatility in Cable (GBPUSD). We have preliminary Q4 Annualised GDP released alongside Durable Goods Orders (Dec) this week from the US. The changing landscape in China’s reopening and the risk of the US going into recession will mean a tightrope being walked on the data front. Will there be a movement out of US assets and the Dollar, or will a real deterioration mean a play for the Dollar from a haven perspective? I’d expect a further deterioration short-term that may give the Dollar some support and cap any significant moves higher in Cable.

If you have a requirement to purchase USD it may be prudent to take advantage of the recent moves. Please reach out to one of the dealing team at Aston and they can discuss your specific requirements in detail.

From a UK perspective, it is a relatively quiet week. All focus next week will be on central bank rate decisions. We have flash UK PMI’s for January released this week that are expected to show a contraction with prints of 49.9 expected on the services side and 45 on the manufacturing side. We are slowing moving to recession it seems.

Inflationary pressures continue to weigh on UK PLC. I would expect the Bank of England to raise by 50bps next week and continue the recent level of hikes.

On GBPEUR we are trading in the 1.13s. You can view the recent movements in the graph below –

The ECB (European Central Bank) have been on the front foot around the pace of their hiking cycle. Energy prices have moderated, and we would expect a 50bp hike in March. The hawkish language is there, and we would expect further increases before any slowing in rate rises. This change of language is providing the single currency with some wind in its sails in recent trade. If you have requirements to sell EURGBP consider placing market orders to take advantage of any moves.

Wrap up warm and have a fantastic week.