The euphoric rises in the markets were put to a halt on Thursday as risk appetite suddenly faltered; with Tech stocks leading the drop from Thursday into Friday. Now, in reality, the market had been going up non stop for a few months, so a dip is healthy, but of course, the market was spooked and we saw many U.S stocks give up gains. So what does this have to do with Sterling exchange rates? Well, the Pound is what we call a “Risk on” trade at the moment, so when risk appetite goes away, so do the Sterling bids, which is what we saw on Thursday and Friday. Fortunately for the Pound, it is Bank holiday in the U.S on Monday, so the U.S stock market can’t affect the exchange rates.
With GBPEUR sitting at 1.12 and GBPUSD at 1.3270, what is next in store for the Pound?- I am expecting a rather busy week on the market, with the main catalyst potentially being the next round of Brexit talks. Over the weekend, Brexit negotiator David Frost did an interview revealing a rather bullish strategy for negotiations, and that he will not be looking for compromises. With both sides having another month or so to come up with an agreement, Sterling may be under some pressure now until we get a resolution. The expectation is that a free trade deal is struck between both sides, but the broader strokes are yet to be seen.
Alongside Brexit talks, below are the key data releases that could impact the markets this week;
- September 10th- ECB Interest Rate Decision
- September 10th- U.S Jobless claims
- September 11th- UK GDP
- September 11th- UK Trade Balance
- September 11th- UK Industrial & Manufacturing Production
- September 11th- U.S Inflation
This will be a “wait and watch” week, where headlines will be doing all of the heavy liftings for us, so it is important to be nimble on the market. If you would like to discuss strategy please don’t hesitate to contact me.