How can you avoid further currency risk?
Working alongside Accendo FX, you can navigate the risks that foreign exchange markets can sometimes throw at an individual or business. Our talented team will not only help you to secure forward contracts that can help alleviate some of the pressures of dealing with FX markets, but will also provide you with timely information regarding potential pivotal events for the currency pairing that affects you.
A common strategy when undertaking a large transaction is to book a chosen percentage of the transaction cost using a forward and then leaving the rest to either a series of spot trades or even further forward trades, should the price move in your favour, effectively raising your average price.
What’s next for Pound Sterling, the Euro and the US dollar?
Politics continue to remain a key driver of FX markets, with the fallout from the UK’s snap general election on 8 June playing a central role. The election was expected to increase Prime Minister Theresa May’s parliamentary majority, but instead ended with a Hung Parliament and fresh political uncertainty. Consequently, a Conservative minority-led government, widely seen as unstable, is now at the wheel as we begin Brexit negotiations, putting Sterling on the back foot against its European and US peers.
The UK-EU negotiations are expected to last until November 2018, the deadline proposed by head EU negotiator Barnier for an informal deal to be reached. However, key concessions will need to be made well in advance, including sensitive issues such as the rights of EU workers in the UK and vice versa, the Irish border and the UK’s leaving bill. These early negotiations could set the tone for the next 18 months, so will the UK agree to concessions to make a deal feasible or will they push a hard bargain?
Finally, the Trump administration remains plagued by ongoing investigations into possible Russian connections, fueled further by the appointment of a special counsel. Concerns that it may result in charges are offsetting optimism that fiscal policies could stimulate the economy. Whilst attempts to implement Tax Reform, Healthcare Reform and Deregulation continue, the administration has nothing to show for it. Can the President and lawmakers reach a meaningful agreement to revive the ‘Trump trade’ and dollar?
However, away from politics, macroeconomic trends are becoming increasingly important for FX markets. While the US Federal Reserve continues with its tightening cycle, recent top tier data releases have been disappointing, with Inflation falling from February highs of 2.7% as the US approaches full Employment. Will the weak data force the Fed to slow its tightening to the detriment of the USD?
It’s a similar story for the Bank of England. In June, Inflation soared to its highest level since 2013 while Wages and Retail Sales disappointed, prompting 3 of the 8 MPC members to vote for the 1st rate hike since 2007. The ECB has also turned more hawkish on monetary policy, with markets expecting tapering to begin before end-2017. In the battle of the central bankers, who will give their currency the edge?
Over the page, our report concludes with analysis of our clients’ top three traded currency pairings, GBP/USD – or ‘cable’ – GBP/EUR and EUR/USD. Which currency pairing are you most affected by?
