Whether the Pound has found its feet against its European peer or whether there are more hard times ahead, it’s always important to have multiple options available to you to protect your financial position. That’s why being able to secure a forward contract could be a useful addition to your financial toolkit.
When reliant on foreign exchange transactions for either business or pleasure, spot price fluctuations could force you to undertake a currency transaction at an unfavourable rate. A forward contract allows you the security of a guaranteed fixed price, irrespective of future movement, for up to 12 months.
In order to secure a forward contract, a deposit of up to 5% of the overall trade’s value is required. This is then attributed to the forward’s settlement, with the only requirement being that this takes place within the agreed upon time frame. For further details on forward contracts, including examples using recent global events, our previous publication on the subject contains all the relevant information.
Now that you know some available options, what does the City of London say about Sterling/Euro?
While August saw GBP/EUR touch an almost 8-year low of €1.075, excluding October 2016’s flash crash, a positive start to September has seen break a notable 6-week downtrend. Ahead of pivotal ongoing and upcoming events, including Brexit negotiations and central bank meetings, investors will gauge whether the September channel can continue towards €1.10 to test the longer term 4-month downtrend.
City brokers have a positive-leaning outlook, with an average end-2017 target price a little under 1% higher than the current price. Individual broker forecasts range from Nomura’s bullish $1.191 forecast to HSBC’s bearish prediction that the pairing will fall to parity – where £1 would be equal to €1.
Events: BoE –14 Sept; German Election – 24 Sept; ECB – 26 Oct; Brexit negotiations – ongoing
What about the outlook for Cable?
While the Pound has been struggling against the Euro throughout the second half of 2017, the currency is enjoying a much more positive period of trading against its US peer. GBP/USD – commonly referred to as ‘Cable’ – traded a high of $1.327 in August, an 11-month best, and remains above the $1.30 mark. Since the start of May, Cable has diverged from GBP/EUR, however it remains in a 6-month uptrend.
City brokers are generally bearish on the outlook for Cable after 2017’s strong rally, with an average end-2017 target price 2.3% below the current level and less than a quarter expecting the price to increase. Analysts at Nomura are the most bullish, with a $1.37 target price for the end of 2017. HSBC, are once again the most bearish brokers, expecting the pairing to fall to $1.20 by the end of the year.
Events: BoE –14 Sept, 2 Nov; Fed – 20 Sept, 1 Nov; Brexit negotiations – ongoing
On the following two pages, we look at both currency pairings in a little more detail, reviewing charts, technical indicators and broker targets so you can make an informed decision on future performance.
