Sterling exchange rates dipped a little by the end of the week following the Bank of England meeting- it seems that the BoE is not looking at cutting interest rates again until next year- this makes sense as we will not see how much damage has been done to the economy until the end of 2020- so 2021 makes sense to take action through Monetary Policy. The BoE said that negative interest rates are “In the toolbox” but not something they are considering at this stage, but I do have a feeling that this is something many economies may need to seriously consider in 2021. Initially, on Thursday morning, we saw Sterling rally- but by Friday close the Pound to Euro exchange rate was at 1.1070 and GBPUSD was sitting at 1.3040.
At this stage, and please take what I am writing with a pinch of salt- I do not see much in the way now for further Sterling gains in the short term. GBPEUR is very low at the moment and I believe that the Euro strength following the recovery fund agreement is now fully priced in- and now there is nothing else to boost the Euro against Sterling. GBPUSD exchange rates seemed to have trouble around the 1.32 area where there were many sellers and profit takers- but I do not think it is unrealistic that we can get back to that level or above in the short term. The reasoning behind this is that Brexit seems to be the only real risk in GBP, and not many traders seem to care about it right now. The UK and Japan are about to close a trade deal, and Boris’s relationship with Trump indicates that a deal with the USA should be relatively easy (I may eat my words on that next year but let’s see). And with the EU, well, both economies are pretty bad, a free trade agreement is in interest to both parties, so I don’t see why they would hesitate to get it done, anything else we see in the media is posturing in my opinion for clicks on articles. October will be the make or break month for this, so I think that we may see GBP strength for the next month, and then GBP may decline into October just in case a No Deal is a possibility until we see something finalised on the Brexit side of things, and providing a deal is done, then GBP should rally.
In regards to Economic Data, most in the UK is being ignored- the only real data I see reactions on at the moment are any jobs numbers in the U.S- and even those I take with a pinch of salt as these figures can be skewed in many ways, and with an election coming up, of course, jobs numbers are going to be positive until the day of the election!
So what are we expecting this week? There are a few data releases that could move the market, which I have listed below- however, if you are working with a specific situation and would like a tailored strategy, just drop me a message and we can create one for you this week.
- Tuesday 11th August- UK Employment change (Forecast to drop to -298k)
- Tuesday 11th August- UK Average Earnings (Forecast to drop to -0.1%)
- Tuesday 11th August- UK Unemployment Rate- (Forecast to rise to 4.2% from 3.9%)
- Wednesday 12th August- RBNZ (New Zealand) Interest rate decision
- Wednesday 12th August – UK GDP 3 month average & YoY
- Wednesday 12th August- UK Industrial & Manufacturing Production
- Wednesday 12th August – U.S Inflation Rate
- Thursday 13th August- U.S Jobless claims data
- Friday 14th August- U.S Retail Sales