ACM Update 20-09-22

All eyes this week are on the Central Banks. Will it be a 75bps hike from the Federal Reserve and the Bank of England? If the Dollar remains in the ascendency where will Cable (Sterling/Dollar) and EUR/USD trade? It is going to be a week for potentially sizeable moves on the currency side?

Sterling/Dollar –

Last week saw Sterling/Dollar hit the mid-1.13s. You can view the movements in the graph below –

Should we have a 75bps hike from the Fed on Wednesday then focus will shift to the Fed’s ‘Dot plot’ (Forecasts for growth, inflation, interest rates and unemployment). Should the Fed signal that peak interest rates will be closer to 5% than 4%, then expect the Dollar to push significantly higher. There has been some noise about a 100bp hike although that seems unlikely. It’s effectively an inflation call at present. Inflation still hasn’t hit a ceiling it seems, and it will be interesting to see how this looks end of Q4.

From a UK perspective, The Bank of England’s Monetary Policy Committee (MPC) will raise rates this week. 50bps or 75bps? We will have the highest interest rate since the financial crisis in 2008. I slightly err on a 50bps hike as hawkish surprises have been rare. However, 75bps is still on the table. Is 50bps forceful enough considering potentially longer inflationary pressures? Time will tell. I expect GBP to remain under the cosh for the time being and the Bank’s reaction on the fall in GBP in recent weeks will be interesting to hear.

If you hold USD and need to move into GBP consider executing a percentage of your exposure prior to Wednesday. Movement could be significant, and you don’t want to be on the wrong side of the move. If you would like a member of the Aston team to get in touch to chat through technical levels and strategy, please let me know.

Sterling/Euro

You can view the recent movements in the graph below –

Risks remain slightly to the downside although the outlook for the single currency remains fragile at best. We had German PPI data out this morning with a MoM print of 7.9% and 45.8% YoY that substantially beat estimates. The focus today though will be the speech from the ECB President, Christine Lagarde. Hawkish commentary around energy policy, interest rates and inflation may give the Euro some upside although any gains for the Euro will remain limited at best. I expect GBP/EUR to remain range bound in upcoming trade.

If you hold EUR and need to move into GBP it may be worth considering covering off some on a SPOT basis. Please reach out to one of the dealing team at Aston who can provide you with rates and guidance.

In other news this morning the Swedish Central Bank hiked their interest rates by 1%. This kicks off a week of aggressive rises for Central Banks.

Releases for the week ahead –

Tuesday – ECB President, Lagarde speaking

Wednesday – US Fed interest rate decision

Thursday – SNB interest rate decision, BoE interest rate decision

Friday – Fed Chair Powell speaking

Have a fantastic week