Sterling Redemption Underway
The following update is from the trusted currency exchange firm World First.
“Our greatest glory is not in never falling, but rising every time we fall.” Perhaps sterling took some inspiration from Confucius, China’s famous ancient philosopher, as last week the pound surged to multi-month highs against the dollar and euro, a far cry from the lows of 1.36 and 1.02 reached just months ago. Sterling concluded the month of May recording its best monthly performance against the dollar since the mid 80’s.
Last week saw worldwide sentiment continuing to provide a positive outlook for risky assets worldwide, with equity and commodity markets advancing, albeit slowly.
Good news from the UK came in the form of housing data, figures from Nationwide revealing a positive bounce of 1.2% for house prices in the month of May, indicating that while this may not be the bottom of the property market, the free fall is at least moderating. However, we do suggest that there is further weakness still to be realized, with worrying signs including the low levels of housing stock being shifted (owners aren’t selling unless they have to), and unemployment levels yet to peak. However, if further stability in housing prices is witnessed in coming months, lenders may be more willing to loosen lending criteria, further aiding in the recovery process.
The pound wasn’t the only currency bathing in glory over the week, commodity currencies in general continued onwards as investors search for a higher yield. The Aussie dollar reached eight month highs against the US dollar, on the back of increasing bullish PMI readings from its major trading partner, China. Commodities have continued on strongly, with oil reaching $66 per barrel, over double the lows of $32 reached in December.
The euro zone was delivered some sobering news, with inflation figures arriving at a flat 0.0% (consensus 0.6%). This raised fears of deflation within the euro zone, and provides further headaches for the ECB as they attempt to combat the recession. German business confidence figures also showed that full economic recovery is still a while away. Despite this, the euro was able to push the hapless dollar into the 1.42’s, largely due to dollar weakness than euro strength.
The week ahead sees rate decisions from the European Central Bank (ECB) and Bank of England (BoE), with the latter likely to be a non event. From the US, we have non-farm payrolls late in the week which have a consensus reading of 521,000 jobs to be lost in the month of May. The euro zone also provides retail sales figures on Thursday
Trade of the Week
The trade of the week is relevant to a seller of sterling and a buyer of dollars. This zero premium structure enabled the client to hedge their exposure for a six month period through a ‘window convertible forward.’
The client has a worst case rate (WCR) of 1.60 and can benefit 100% of any and all upside up to a rate of 1.75 during the relevant window period. Should GBP/USD hit 1.75 at any point in the window period, the structure reverts to a forward contract at 1.60. For full details of this structure please contact one of our options traders on 0207 801 9050.
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If you would like to discuss your foreign exchange requirements, please contact the World First Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.
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