ACM Update 22-08-22

Written by: Liam Alexander
Date posted: 22-08-22

It might be a glorious summer weather wise for the UK although the clouds are certainly gathering over GBP. Does Sterling have further to fall? Is talk of a Sterling crisis far-fetched? There doesn’t seem to be much to hold GBP up in the present climate so we could be in for further downside in upcoming trade.

- As inflation becomes more entrenched it seems likely the pound has further to fall.

- The UK current account deficit is at a record high of 7.1% and this will leave Sterling at risk if overseas investors pull money from UK PLC.

- If political interference in changing the Bank of England mandate on interest rates and inflation takes place, then expect downside risks.

Sterling - Dollar

Sterling/Dollar has shifted lower. You can view the recent movements in the graph below –

If you need to sell USD into GBP then consider taking advantage of the recent moves by locking in a percentage of your exposure on a SPOT deal. If you would like rates and a conversation with our dealing team around technical levels to target, please reach out to them directly.

- Retail sales showed an increase of 0.3% MoM. However, I don’t see this as changing the long-term narrative in consumer spending. I expect this to be curtailed in the coming months. Again, this will impact GBP.

- More interest rate hikes seem a given. I would expect another 50bps hike from the Bank of England in their next meeting on 15th September.

All in all a positively rosy outlook for Sterling this week. Our dear friends across the pond in the US will continue with their interest rate hikes to combat the ‘unacceptably high’ inflation. Is it at a peak already? I would expect a 50bp hike in the Federal Reserve September meeting rather than a 75bp hike.


You can view the recent movements in the graph below –

- German producer price index data was the real surprise with data coming in at 5.3%, which was nearly SIX TIMES the estimated figure. Overall, Germans paid 37.2% more to producers for commercial goods in July compared to the same month last year. Naturally, gas and electricity are the main drivers.

- Inflation overall in the Eurozone came in at 8.9% (y/y) for July. The head of the Bundesbank, Joachim Nagel, stated the ECB will need to keep raising interest rates to combat inflation, even though Germany and the Eurozone are facing a recession. He expects double-digit inflation for the bloc in the Autumn.

Sterling is largely on a downward trajectory and GBP/EUR has fallen from over 1.19 last week to the high 1.17s in Monday’s trading session. If you hold EUR consider taking advantage of the recent downside move and lock in some of the gains.

Data for the week ahead:

Tuesday – Manufacturing & Services Data UK/Eurozone/US (08:15 to 14:45)

Wednesday – US Durable Goods Orders (13:30)

Thursday – ECB Monetary Policy Meeting Minutes (12:30), US Preliminary GDP (13:30), Jackson Hole Symposium Day 1

Friday – Jerome Powell speaks (15:00), Jackson Hole Symposium Day 2

Have a fantastic week