Sterling had a couple of brief rallies towards the end of last week

22 July, 2019

Simon Eastman

Sterling had a couple of brief rallies towards the end of last week, but overall, it’s still on the backfoot, ending the week lower against the USD and flat against the EUR.

The recent downside we have seen since the beginning of June has been in anticipation of the events this week, as the race to No 10 concludes. Polls suggest Boris Johnson will be heading into Downing Street, but as markets suggest, this isn’t necessarily a good thing for the pound.

As one Rabobank trader was quoted, “If Johnson is confirmed as UK PM next week, GBP would be at risk of weakening. His rival, Hunt, is likely to be greeted a little more favourably by UK investors due to his more pragmatic view on the October 31 Brexit deadline.”

In addition, an article in the Sunday Times reiterated this sentiment, as ING analysts warned their sterling forecast remained on the downside, over concerns of a no deal Brexit, or early General Election. They continued with saying they expect pressure on the pound would build up around the Tory conference early next month and again around the end of October as the Brexit deadline is reached.

With Boris seen as a bigger risk of leaving without a deal, the pound has been under constant pressure and is likely to remain so, so given the decision comes tomorrow, it may be prudent for any currency requirements to be wrapped up today ahead of the results being announced on Tuesday. You can lock in a rate for any more longer term needs by way of a forward contract, so worth calling one of our consultants today to discuss your options further.

Although likely to have little impact on the markets, given the political shadow overhead, we do have a few eco stats to consider this week. Those of most note are detailed below:

Tuesday, ECB Bank lending survey, FPC meeting minutes, speech by BoE member Haldane, US house sales figures and New Zealand trade balance overnight.

Wednesday, German, EU and US manufacturing and service PMI and EU money supply.

Thursday, German business climate survey, ECB interest rate decision and policy statement, US jobs data and US durable good orders.

Friday, US GDP.

A few bits to go on, but more key for USD and EUR which given the precarious position the pound is likely to be in, could well see some volatile trading conditions for the week ahead. That said, keep in touch with the team to ensure you don’t get caught out.