Last week we saw Pound Sterling Exchange Rates continue to rally across the board, closing Friday at 1.1170 against the Euro and above 1.26 against the U.S Dollar. The main catalyst for this was the Summer Budget from Chancellor Rishi Sunak who announced numerous spending plans to help kickstart the UK economy again, these are usually non-events, but the market seemed relatively impressed with the plans and Sterling strengthened across the board for the rest of the week. It must be said though, that at the same time many larger companies have begun to announce mass redundancies, such as Boots and John Lewis, which indicates the reality that not every job will be saved this year no matter how much the Government spends.
For many of our clients, the recent bounce in Sterling has been welcomed, but of course, the question is always “How much further can the Pound go?”- the good news is that the UK’s fiscal and monetary policy has allowed for the UK to at least show signs that growth can occur, and this is keeping investors happy, the bad news is that now this is done, we will need new factors to come into play for Sterling to continue strengthening.
The main factor we mean is, of course, Brexit, so far talks don’t seem to have been going anywhere, but rumours on the wire keep indicating that concessions may be made on both sides in regards to fishing rights etc, but until we have something concrete Sterling won’t move.
BlueBay asset management have announced that they are betting on a “Hard Brexit” and that they believe we may see GBPEUR exchange rates at parity over the coming year- the article is worth a read whether you agree or disagree to see what the fund managers are doing and how they are playing this negotiation from an investment perspective- https://www.ft.com/content/9520e0e0-1eaf-41f1-b1b6-3a2afae0a37d
As far as the UK economy is concerned, we have a few releases this week that will help to give us a clearer picture of things are looking since our lockdown was eased- the first being our GDP figures on Tuesday. alongside our trade balance figures with industrial and manufacturing production- we are not expecting positive figures for any of these but we are looking for any signs of improvement since things have become eased. On Wednesday our inflation figures will be released in the UK, which is expected to stay around the 1.2% area (still below the 2% target). Lastly, on the 16th our employment figures will be released, which will probably be of most interest as layoffs have begun across the board, we will be waiting to see how many jobs have been lost through this period so we can begin estimating how it will look once furlough ends.
Across the pond, I am also watching the Covid cases very closely in the U.S, we are beginning to see cases rise pretty rapidly over there, I think as more lockdowns emerge, another stimulus bill will be needed.
The last thing on my watchlist is the EU this week, the ECB will have their announcement with no changes expected, but generally, we are looking for any signs of an agreement to the recovery fund- the EURUSD rate seems to be stuck between 1.12-1.13 at the moment, an agreement could see us rise to 1.14/1.15 relatively quickly, so for those of you trading the Euro, this is the main thing to be watching for.