• Careers FAQs Client login
Can Sterling kick on?Can Sterling kick on?Can Sterling kick on?Can Sterling kick on?
  • Home
  • Services
    • Foreign Currency Risk Management
    • Interest Rate Risk Management
    • Fund Finance Services
    • Investment Products
  • Industries
  • Our Technology
  • About
    • Who we are
    • Culture
    • Careers
  • Our Team
  • News & Insights
CONTACT US
✕
            No results See all results
            Five ways inflation could impact Private Equity
            8 June 2021
            Hawkish Fed steps on the gas
            22 June 2021
            15 June 2021
            Categories
            • Insights
            Tags
            INSIGHTS • 15 June 2021

            Can Sterling kick on?

            author-Marc-Cogliatti

            Marc Cogliatti, Principal, Global Capital Markets


            After a good result for England’s national football team on Sunday, alongside the conclusion of the G7 summit in Cornwall, media attention quickly shifted to Boris Johnson’s scheduled press conference yesterday evening. By the time the announcement came, everyone was expecting an extension to the current lockdown measures. The only questions were how long restrictions would remain in place and whether there would be any concessions for planned events, such as weddings. One could argue that the PM scored an own goal, with a number of Tory rebels strongly criticising his latest move, but a cautious approach to exiting lockdown was almost inevitable.

            Last month, I wrote a piece setting out three reasons for being cautious about the British pound. My primary concern at the time was the threat of the delta variant, which has indeed resulted in lockdown being extended. However, the impact on sterling has been negligible (so far anyway), which may be slightly surprising but is almost certainly a result of three factors:

            Chart 1 – CFTC Positioning

            can sterling image 1

            Source: Bloomberg

            Secondly, we looked at momentum, noting GBPUSD had stalled ahead of its 2018 high of 1.4380 and was starting to look ‘overbought’. After a period of consolidation, the overbought nature of GBP/ USD has eased somewhat, but that fact that we have not been able to break any higher gives cause for concern.

            Chart 2 – GBPUSD Momentum

            can sterling image 2

            Source: Bloomberg

            Instead, a renewed risk facing the UK economy (and the pound) is the potential for a trade war between Britain and the EU over the application of the Northern Ireland protocol. Speaking to Sky News at the G7 meeting, Boris Johnson said he will do “whatever it takes” to protect the integrity of the UK and that he is prepared to invoke Article 16 if necessary. For now, discussions will continue, but at the very least, it is a far cry from the amicable separation we all hoped for when the trade detail was announced back in December.

            So, in answer to the question over whether we should be more optimistic about sterling, given how well it has held up despite the recent bad news, our overall bias remains unchanged. Like the football, I feel a lot more positive about England’s chances following Sunday’s victory, but I am reminded that we have only played one match and there is a long way to go. The same applies to sterling, where there continues to be further challenges ahead.

            In the short term, one catalyst that could trigger a breakout in GBPUSD is the FOMC meeting scheduled for tomorrow. Clearly Powell is not expected to announce any changes to policy just yet, but any shift in the Fed’s forward guidance could increase volatility in the dollar.

            Be the first to know

            Subscribe to our newsletter to receive exclusive Validus Insights and industry updates.

              Share

              Related posts

              2 June 2023

              Reviving Concerns: Central Banks and Inflation Regain the Spotlight


              Read more
              31 May 2023

              The market meets (the Fed’s) expectations


              Read more
              24 May 2023

              Will the labour market be the answer to the MPC’s prayers?


              Read more
              Validus-white-logo
              Services

              Foreign Currency Risk Management

              Interest Rate Risk Management

              Fund Financy Advisory

              Investment Products

              Industries

              Private Capital

              Pensions Funds

              Corporates

              Our Technology

              RiskView

              TradeView

              PortfolioView

              London

              19 Wells Street
              London W1T 3PQ
              T. +44 (0) 203 923 8575

              Eton, UK

              119-120 High Street
              Eton, SL4 6AN
              T. +44 (0) 175 338 6548

              Toronto, Canada

              10 King Street East, Suite 800
              Toronto, Ontario M5C 1C3
              T. +(1) 416 646 0590

              New York, United States

              222 Broadway, 19th Floor
              New York, NY 10038
              T. + 1 929-219-3793

              T&Cs | Privacy Policy | Regulatory

              Copyright 2022. All rights reserved. Validus Risk Management Limited is authorised and regulated by the Financial Conduct Authority (firm reference 555972), is licensed by the CFTC and is a member of the NFA (ID 0504990). Validus Risk Management Limited is incorporated in England and Wales (registration number 07140753), with its registered office at 119-120 High Street, Eton, Windsor, Berkshire, SL4 6AN, United Kingdom.

              CONTACT US
                        No results See all results