And then there were 4

20 June, 2019

Rob Bastin

Sterling exchange rates have now been dropping for 6 weeks from the speculative highs seen back in April and May. On Tuesday the Pound hit some key support levels across many major currencies that could very well signal the end of this drop, for now…. Sterling is up around 1% in the last 24hrs as rates begin to stabilise at these lower levels. Part of these gains will be attributed to profits being taken for speculative sellers over the last month or so, whilst also in part due to the slightly better than expected producer Price index figures for the UK yesterday morning. At the same time UK inflation was confirmed at the target 2% for the last year, down from the over target 2.1% previously.

What is important to consider is that whilst we may not go too much lower on exchange rates in the short term than has already been seen, conditions are far from in place to see a recovery to where rates were a couple of months ago. With the new PM to be announced end of July, followed by parliament recess throughout August, there is little reason for the uncertain Brexit landscape to shift until at least September or October. The likelihood is that all options including ‘no deal’ will be firmly back on the table. So with all the uncertainty when should you look to secure your currency? Timing a currency exchange is always a gamble, and everyone’s appetite and feelings on what will come will vary. For the next few months however it is unlikely that the market will give many opportunities at better levels, whether it be buying or selling. The current conditions make the probability of a sideways consolidating market very high over the next couple months, within a relatively small range and particularly against the Euro. The plus side to these markets are that peaks and troughs can become very predictable as traders await further develops that would warrant a bigger move. To discuss these levels and the highest probability target rates for your exchange, contact your currency consultant today on 01923 725733.

Last night had a couple of key events that are slowly developing the new landscape to come. Firstly the latest interest decision from the Federal Reserve was announced at 7pm with a hold at 2.5% base rate widely expected. The Fed have previously indicated that any further hikes are truly on hold for now whilst awaiting new economic data for consideration. Th ECB indicated this week that more rate cuts are still a tool for them moving forward, with strong rumours that the Fed may be forced to follow suite sooner than later as global growth slows. The announcement went as expected with a 2.5% hold on the base rate, and the accompanying statement was as dovish as has been seen from, the Fed recently without actually cutting rates. Many banks are now forecasting 2 to 4 rate cuts before the end of the year, with most anticipating a 25bp cut as early as next month. Cable has risen around half a cent since the announcement.

Finally last night also saw the next round of Conservative votes for race for prime Minister. With 5 runners left in the race, 1 more was to drop out last night and 2 more before the weekend, leaving a final 2 going into the final announcement late July. The latest candidate to drop out of the race was Rory Stewart with just 27 votes, behind Javid, Gove and Hunt respectively. Boris Johnson once again picked up the greatest number as he continues to be odds on favorite to win the leadership battle.

This evening 2 more candidates will be eliminated from the remaining 4 to give us the final 2 heading into July. Before that however the market can digest some fresh eco-stats for the UK in form of Retails Sales figures at 9:30am, followed by the Bank of England rate decision at midday. Again no changes are expected but as ever Mark Carney’s words on the current political, Brexit situation and forward guidance will be listened to carefully, particularly with relation to the possibility of future rate cuts given it has been a hot topic this week from central banks around the world.