ACM Update 07-03-22

Geopolitical uncertainty has never been higher with the ongoing Russia/Ukraine situation and how this plays out is an unknown. The Dollar is in the ascendency due to its haven status. Sterling/Euro is at the highest level since June 2016. The world has indeed been thrown upside down again.

Written by: Liam Alexander
Date posted: 07-03-22

Sterling/Euro

You can view the recent movements in Sterling/Euro in the graph below

GBP-EUR

If you have a requirement to purchase EUR it may be prudent to lock in some of the gains. We’re at the highest levels in close to six years. If you would like a SPOT rate, please reach out to the dealing team. If you haven’t considered Forward Contracts previously it may be worth a conversation with a member of the Aston team. By locking in at these levels you mitigate any downside risk on GBP/EUR. If you would like a conversation around your specific requirements feel free to reach out to me directly.

The ECB (European Central Bank) monetary policy statement and press conference this week will be keenly watched. Eurozone inflation has been impacted to the downside so it leaves the ECB, like the Federal Reserve and the BoE, to manage a very uncertain environment. The ECB need to address inflation and slow economic growth whilst also sitting tight to see the economic impact of the Russia-Ukraine conflict. Expect the term stagflation to be mentioned more often. The EUR is going to continue to be under pressure I feel, certainly short-term. Investors have been moving into CHF as a haven and selling off EUR resulting in EUR/CHF going under parity for the first time in 7 years. Sterling has been a beneficiary of EUR weakness so if you have any requirements consider implementing a take profit order on GBP/EUR. Feel free to contact the dealing team and they can chat through technical levels with you.

Sterling/Dollar

The dollar is being supported with haven demand. You can view recent movements in the graph below

GBP-USD

I don’t see USD giving much up short-term so Sterling/Dollar will continue to trade sideways with a downside bias. If you hold USD consider moving a percentage of your requirements into GBP on SPOT basis. There has been a range of just under 1.8% over the past week on Cable (GBP/USD). If the downside bias persists it may be worthwhile implementing a take profit order at 1.30 to aim for in the medium term. If you would like us to implement an order please reach out to the dealing team.

The Federal Reserve is due to meet on March 15-16th and the BoE is due to meet on March 17th. I would expect both central banks to raise rates by 25bps. Will the geopolitical tensions change monetary policy strategy? Potentially. Risks to GDP, growth, and inflation have increased. Rising commodity prices will ultimately be passed onto the end consumer in everyday products. 2022 is going to be an environment of uncertainty for all major economies and central banks.

Markets will continue to be led by the Russia-Ukraine conflict, commodities, and further sanctions around Russia and its economy. Central Banks and European Governments reactions to the ongoing crisis will impact G10 currencies short-medium term. Make sure you have a plan in place with us to mitigate some of this risk. If you hold CAD/NZD/AUD these commodity led currencies are likely to continue to fare well so consider covering some on SPOT back into GBP or place an order in the market to capture some of the upside if you have a Sterling requirement. Again, our team is on hand to help you with your currency management through these quite frankly exceptional and turbulent time.

In terms of data we have European GDP (QoQ) and (YoY) (Q4) released on Tuesday with prints of 0.3% and 4.6% expected respectively. Thursday, as alluded to above, we have the ECB monetary policy statement and press conference. Data from the US side to be watched this week is in the form of CPI (Consumer price index) and the Michigan Consumer Sentiment index.

If you have any questions around your FX exposure and how to manage it effectively, please reach out to me directly.

Have a fantastic week.