Client Newsletter - 13 - 12 - 21
As Michael Bublé may suggest “it’s starting to feel a lot like… last year”. The new variant Omicron is now front and centre for the UK and indeed globally. How will this play out? It is too early to say. What will this do for currency markets? It will throw further fuel onto the bonfire of current economic and political uncertainty.
Cable (Sterling/Dollar) has been on the back foot largely in recent trade. You can view the recent movements in the graph below –
We have had a slight rebound this morning back into the mid-1.32s on Sterling/Dollar. However, I expect risks to the downside to remain. The chances of a rate hike from the Bank of England have been kicked down the road for now it would seem capping any type of sustained recovery for GBP short-term. If you hold USD I would consider speaking with our trading department to discuss technical levels and implement take profit orders to the downside. Over the next few weeks GBP may come under further pressure so by having some staggered levels to aim for this can help average up your rate of exchange going into year end.
In terms of data out this week around Sterling we have the UK ILO Unemployment rate (3M) (October) out Tuesday with a print of 4.2% expected against a previous print of 4.3%. We have inflation data out in the form of CPI (YoY) (Nov) on Wednesday with a print of 4.7% against a previous print of 4.2%. (If you’ve started your Christmas shopping already this number may feel low!). It is ‘Super Thursday’ this week with Bank of England minutes, interest rate decision and monetary policy summary. At one point last month it looked like an odds on certainty of an increase in rates from the BoE. It now looks to be a ‘wait and see’ approach for next year. However, in recent times the old adage “the only certainty is uncertainty” rings true. Please have a call this week with your point of contact at Aston if you have requirements in the run up to Thursday.
From a US perspective the calendar is a little lighter with Retail Sales released Wednesday followed by the FOMC meeting. US data has remained robust with the main challenge being runaway inflation. We’ll get insights from the Federal Reserve on the pace of tapering and some clearer indication on future monetary policy.
The current economic and political climate is fraught to say the least. If you are starting to look at costed levels for next year, please do speak with a member of the Aston team. We can work together to create a strategy for you that will provide you with clarity, control and certainty around your currency hedging and execution requirements for 2022. Do we know where rates are heading with 100% certainty? No. We endeavour to put a plan in place to mitigate your downside risk whilst allowing room to take advantage of upside opportunities – never over or under hedged.
In terms of Sterling/Euro you can view the recent movements in the graph below –
We had been trading in the 1.16s for a while last week although we have had a light uptick back into the 1.17s at the start of the European session. Sterling has its own troubles although I expect GBP to nudge higher against the single currency. Tougher restrictions are expected to be put in place across various countries and the growth outlook remains weak. If you have a requirement to purchase EUR from GBP I would consider taking advantage of the recent upside move for a percentage of your requirements on a SPOT basis and implement a take profit order in the market to take advantage of any EUR weakness over the coming weeks. As I’ve alluded to previously, Sterling/Euro seems to be in a never-ending scrap with bloody noses for each and no clear winner. Could a sustained break to 1.20 materialise? Quite possibly. Could a sustained downside move to 1.15 materialise? Quite possibly. In terms of data and releases this week around EUR we have the ECB rate decision and monetary policy statement on Thursday with inflation data following on Friday.
They say a week is a long time in politics. It seems like 24 hours is a long time. It’ll be bumpy ride going into Christmas so if you need to cover anything off please let us know and we’ll be happy to assist.
Have a fantastic week
Written by Liam Alexander