Currency Risk Page 2

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 continues to play a key role in foreign exchange markets, with the most obvious event that will likely influence Sterling pairings being the UK General Election on June 8. The election comes at a crucial time for the UK, as Brexit negotiations are scheduled to begin between UK lawmakers and their European counterparts just weeks after the culmination on the election campaign.

Prime Minister Theresa May’s Conservative Party are looking to increase their parliamentary majority above the current 17 seats and are widely expected to win the election. A landslide victory would offer the PM the potential to pass through Brexit-related policies with greater ease owing to less opposition, potentially offering a stronger negotiating platform against the EU. However, this may also see the possibility of a ‘Hard Brexit’ increase. Alternatively, a surprise win for the Labour Party opposition would likely see the UK undertake a completely different negotiating strategy and maybe even a ‘Soft Brexit’ scenario. Which of these three issues will investors perceive to be the biggest risk for Sterling?

Rapidly approaching on the events calendar is the June meeting of US Federal Reserve policymakers, with markets beginning to price in the impact of a potential rate hike. Fed fund futures are currently pricing in a 97.5% probability that Chair Jane Yellen and the rest of the FOMC will vote to increase the base rate of interest from 0.75% to 1%. Although US macroeconomic data releases in May have not been as strong as in previous months, should the June meeting follow the pattern of the last two interest rate rises in December and March, where both meetings were followed by a post-decision press conference, 14 June – also scheduled to have a presser – may well see another rate hike.

Finally, the presidency of Donald Trump continues to rattle FX markets, with the latest sagas in his unconventional premiership provoking particularly harsh reactions. The firing of FBI Director Comey as the bureau investigates his administration’s possible contact with Russian officials has many crying foul, however he has been quick to rebuke those calls. Furthermore, major US news outlets have reported that Trump himself leaked confidential intelligence to Russian officials. In reaction, the US dollar has fallen to its lowest level since his November election. Will ongoing scandals threaten to send it even lower?

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?

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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