The Pound Remains Fragile
The pound has fallen significantly against the majority of major currencies following a host of poor economic data. This has put a halt to a rate hike from the Bank of England (BOE). It looks as though a rate hike this year is now unlikely.
GBP/USD – Sterling has fallen heavily against the greenback, this is not just due to the poor monetary policy forecast from the BOE it is also due to positive news from the US. US Treasury bonds now have a yield over 3% for the first time in years. The US Dollar is now proving to be very attractive for investors, high returns in a currency considered to be a safe haven.
The US and the Chinese have recently agreed to put a halt to the trade war under the premise that China will purchase USD 200bn worth of US goods and services which has also been a catalyst for Dollar strength.
USD Buyers – Pray, just kidding. The way things are looking at present, if you have to move short term aim for 1.37. Be prepared to lower your expectations 1.40 is now going to be difficult to achieve.
USD Sellers – You are in an exceptional position, Brexit uncertainty and poor economic data means rate are favourable. There is the possibility for further gains, but greed could prove costly.
GBP/AUD – The Australian Dollar has also benefited from the truce in the trade war from China and the US. Australia is heavily reliant on the Chinese purchasing it’s raw materials, in particular iron ore. The heavy tariffs to be imposed by the US would no doubt have an impact on growth which in turn would hit the Australian economy. News of the China -US truce along with the poor data and interest rate outlook for the UK has caused GBP/AUD to drop as low as 1.76, a long way for the recent highs of 1.84.
AUD Buyers – Australian Dollar buyers should be aware of new buoyancy levels that I would expect to be between 1.75-1.80. Aim for 1.79 if you have to move short term.
AUD Sellers – The Reserve Bank of Australia’s (RBA) monetary outlook is quite pessimistic, it is unlikely there will be any change in interest rate until 2019. The pound is chronically undervalued due to Brexit and will rally, when is the question. A deal between the EU and the UK is meant to be in place by October although I am confident this will not be met. Clarity on the matter will no doubt cause significant Sterling strength.
Aussie sellers, considering a nearly 10 cent gain, take advantage of current levels.
GBP/EUR – Sterling has proved resilient against the Euro. Unfortunately this is more due to Euro weakness than any positive news from the UK. The Italian coalition of League and the 5 Star movement is a concern for the Eurozone. There is the intention to increase public spending significantly and and also make huge cuts in taxes. Italy is the the bloc’s most indebted country behind Greece. Italy’s current debt is 130% of it’s GDP.
There is also talks of the Eurozone consolidating all debt into one large debt pool to avoid any Countries suffering a similar situation to Greece. Germany, the engine room for the Eurozone is trying to avoid taking any part in this and is currently making plans to eradicate all it’s public data in an attempt to avoid taking any part of the debt pool.
The Euro has lost value as a result.
EUR Buyers – The peak of the market in the last 12 months is 1.1599. Considering the current state of the UK economy aim for 1.1450 if you have to move short term.
EUR Sellers – You are in a very favourable position be wary of hanging on for significant gains, be aware GBP/EUR was 1.42 + pre-Brexit. Move in the 1.13s.
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Thank you for reading.