ACM Update - 10-01-22

Written by: Liam Alexander
Date posted: 10/01/22

Second week of January. Will Sterling keep the upside momentum this week or will it fall by the wayside like those New Year’s resolutions?

Sterling/Dollar (Cable) is trading under 1.36 the figure this morning. After some strong upside momentum last week, the pair needs some clear direction. You can view the recent movements in the graph below –

It will be a case of testing and breaking through 1.36 after hitting a high of 1.3598 last week. However, I don’t think we’ll see a sustained break above 1.36 this week due to a myriad of concerns around the UK and GBP (Covid/inflation/Brexit) and a Dollar that is recovering after a sell off on Friday.

Indeed, the NFP (Non-Farm Payroll) disappointed to the downside with a print of 199K for December that came in considerably below analysts’ expectations. Previous prints in October and November were 648K and 249K respectively. However, a hawkish rhetoric from the Federal Reserve around monetary policy should continue to give further impetus to the Dollar with numerous rate rises expected. It is a case of when and by how much.

If you hold USD and need to move into GBP please contact the trading department and they will be able to discuss implementing take profit orders at staggered levels to capture any movement in rates. If you are moving into USD from Sterling consider taking advantage of the recent upside moves through a SPOT trade or a Forward Contract. If you would like a member of the Aston team to get in touch, please reach out to me directly.

In terms of Sterling/Euro we are approaching the giddy heights of 1.20 the figure. You can view the movements in the graph below –

Will GBP/EUR break through the barrier of 1.20 or will it get turned away like Novak Djokovic? I expect Sterling/Euro to trade slightly higher this year although it will be more of the same from 2021 – GBP and EUR giving each other a bloody nose from time to time.

In the Euro zone, inflation hit the highest rate since 1985 with Energy the main driver and the increase of food & goods prices (driven by higher transport costs) vs. oil prices bottoming out feeding through to drive down YoY growth. Like many countries real wages remain under pressure as second round effects from high inflation on wage growth remain mostly absent for now.

Back to home soil, a Bank of England 25bp hike is 80% priced for the 3 February meeting and it to hit 1% for the August meeting. The BoE might feel emboldened by the hawkish shift from the Fed especially as higher gas prices mean that UK inflation is now set to peak above 6% in April, and probably stay above 4% until late 2022. Nevertheless, with the jobs market also looking tight, the Bank is set to hike rates further. A higher inflation peak means policymakers may be more tempted to move again in February. Whatever way we look at things, 2022 is going to a prove an expensive year for most!

Data this week

Monday: Euro Zone Unemployment – (Came in at 7.2%)

Tuesday: UK Nov GDP estimates forecast 0.4% MoM/ 7.3% YoY reflecting a decent retail sales & hospitality

Wednesday: The US economy appears strong with CPI forecast 0.4% MoM (>7% YoY?) may push for faster rate hikes and EU Industrial Production

Thursday: US Initial Jobless Claims forecast 215,000 vs 207,000 last month

Friday: US Dec Retail Sales forecast 0.0 vs -0.1% last month however this is likely to be supply related, and January’s Michigan Sentiment forecast at 69 vs 70

If you have any questions or would like a member of the Aston team to get in touch, please let me know.

Have a fantastic 2022 and good luck with the health kick!

Written by Liam Alexander