Event risk will move the exchange rate...
There are quite a few pieces of news this week that could add to exchange rate volatility and determine the short-term direction of the rates. We have had the first stage of the French elections, and await social and economic reaction. Ahead, we have first quarter US GDP figures and President Trump’s outline for tax plans. Looking at that lot, it could well be the Euro and the US Dollar that will be the main movers.
Naturally, the Pound will move on the back of these; and, after a week where we went above 1.19 in the interbank market, the next train of thought is can it continue higher against the US Dollar and the Euro? The election news from the UK sparked the market into life last week. This will continue all the way through as there will be a great deal of uncertainty ahead and how the UK government will deal with Brexit.
Opinion will be divided all the way to the polls, and already the Government are rumoured to have had their so-called “predicted majority” cut. All these things will not help the Pound too much. In fact, nothing changes for Sterling. The election really is not a game changer to move Sterling away from its overall weak feel.
So, on to the short term. We could well break back down a bit towards 1.18. A lot will depend on the fallout and the vote from the French election first round results. If the market perceives a weak Euro then we may even touch 1.20. These are false moves in our view, and only gives a good opportunity to sell the Pound and buy currency.
It's going to be an interesting week ahead and, of course, volatile. We have a feeling that is one thing that will remain constant!
Good luck this week...
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Is the pounds upward move coming to an end…..?
It held well against the Euro, but, fell against the US Dollar and in quite significant fashion. The pound was affected by some mediocre economic figures. Not too bad, just a little mediocre and nothing to get positive about.
Good news, if you like, is that the Pound held up well against the Euro. We saw it move back to the low 1.16s before finishing the week near 1.17 again.
Overall our opinion has not changed on the long term level of the Pound. It’s still fundamentally weak and, although the timescale is unknown, we still like the target of 1.13. What will cause this to happen? Mainly, the uncertainty the U.K. will continue to suffer. The first stage of Brexit has been negotiated safely as expected, but there will be lots of intensity and uncertainty on how much the UK will have to pay to leave Europe and how it will affect the economy.
This will lead to many rumours and, of course, volatility. However, there are many other factors that could affect the Pound. Although the economy is chugging along nicely, the figures are not that consistent or that positive. There is no chance of a recession, but perception of weak figures, or inconsistent ones, will weigh heavily on Sterling
So what about the coming week? We can’t see much change. STG/USD will continue to be the one to watch, and the 1.23 level is the first short term support to look out for. A break through this week could quite easily head to 1.20. For STG/EUR we may break through the 1.16 level again but only just. Any upward move will be restricted to 1.1750 for now. Anything near this or higher is most definitely the place the buy your currency.