The outlook for Pound Sterling
The Pound is enjoying some support and confidence on the expectations that the UK will enter into more of a softer Brexit and the Bank of England will raise interest rates. With the Pound having risen recently on the expectations that both these events will affirm the recent views for the Pound, the end of March could see Sterling higher as any news is confirmed.
A word of caution however, the last EU summit saw Sterling lose ground as the bounce from the good news happened the week before. Clients who held on waiting for the Pound to rise on the conclusion of the withdrawal agreement were left disappointed.
The same is true of the interest rate decision in November where the Bank of England raised rates. Clients holding on hoping Sterling would rise were disappointed as the Pound dropped as the Bank confirmed it would be the last interest rate hike for some time.
There are more reasons to be optimistic over the performance of Sterling in March but there does have to also be a real degree of caution.
Any negative headlines surrounding the lack of progress on the transitional deal or the possibility of a longer wait for the interest rate hike, expected in May, could quickly see Sterling undoing the recent gains.
Theresa May is giving a speech on Friday 2nd March which I believe will be very important to determine the behaviour of the Pound in the opening days of March. Monday 5th March sees the latest UK Services PMI (Purchasing Managers Index) data which is usually a market mover since these figures represent one of the largest areas of the British economy.
The 22nd March is the next Bank of England meeting which is also important as this is the beginning of the next EU summit, where the UK and EU are expected to agree on transitional terms. The Pound might well rise higher on the news of an EU transitional deal being agreed but we can argue this good news is priced in already.
If you have sold a property overseas and need to buy the Pound, developments on Sterling in March will be crucial to getting the best rate. Sterling is looking in slightly better shape but as we know, any good news for the UK must be taken with a pinch of salt at present, an unclear direction on Brexit is hanging over the UK and Sterling rates.
The Pound might well rise higher on the news of a EU transitional deal being agreed but this good news could already be largely priced in.
Much of the key economic news for the Euro in March is within the first week where we could easily see some interesting twists and turns in both political and economic news.
The Italian election gives us a great opportunity to buy Euros with the results due Monday 5th March. Currently a centre-right coalition is most likely to win, the most recent polls available indicate this seems the most likely outcome.
Of course, predictions on elections have all been subject to large variations so caution is required. There are various potential outcomes and I would predict we could see the Euro weaken sharply, although probably operating within its more familiar ranges of the 1.14-1.15 mark.
The likely grand coalition between Silvio Berlusconis Forza Italia party, the Northern League and the Brothers of Italy could be concerning as some of the right-wing elements are anti-Euro. However, it seems unlikely they will get enough support to really trigger wider concern on the direction of Italian politics and therefore the Euro.
It might be that no government can be formed on the 5th and that we will have to endure many weeks of talks and the possibility of another election to ascertain the final outcome. Such fear and worry could easily destabilise the Euro although such prospects in Spain last year and Germany too failed to spark any major sell-off for the Euro.
Economic data is also key with the ECB (European Central Bank) meeting on the 8th March, the ECB has been hinting at hiking interest rates and withdrawing their QE program for the last year. Lately economic data in the Eurozone has been very impressive with economic growth hitting a 10-year high.
Whilst there is possibility of a weaker Euro arising from the Italian election, a more positive mood surrounding the Euro, on the back of a confident ECB could be a more likely situation for the Euro to find itself in.
Clients buying Euros with Pounds might wish to closely track the EU Summit 22-23rd March where any news on the Brexit transitional deal could see the Pound stronger against the Euro. However, this news is widely expected and may well already be priced into rates.
The range on GBPEUR we have occupied from 1.119-1.15 in the first couple of months this year is likely to remain fairly constant for the pair. There is the prospect of a surprise from the Italian election leading to a breakout however.
Watch out for the US interest rate decision from the Federal Reserve on the 21-22nd March
The US Dollar has been one of the most volatile currencies in 2018 as the various factors which drive US Dollar exchange rates come into play.
The US economy and interest rates are a major cause for volatility on GBPUSD rates, the prospect of the US Federal Reserve raising further their base interest rate has mainly led to US Dollar strength. This has not been a one-way direction of travel however, the US Dollar has also weakened as investors have questioned the longer term sustainability of the current interest rate hike cycle.
With the US Federal Reserve meeting on the 21-22nd March, we should see a further interest rate rise which is realistically already priced in to current levels on offer. What will be most interesting from the meeting is how the Fed respond to future hikes.
Of concern to the US Federal Reserve will be the recent stock market volatility which saw the US Dollar gain in value. As a ‘safe haven investment the US Dollar will rise in times of economic uncertainty. Investors will increase their share of US Dollars to shield themselves from risk elsewhere.
Stock market volatility was triggered by concerns rising Inflation would reduce corporate Americas performance as rising wages gave way to less profits. This event proves just how sensitive financial markets can be and tracking any future volatility is vital to understanding the performance on the US Dollar. What goes up must come down and this is very true on financial markets. It does appear that for now however this is a problem for another month and possibly year.
Jerome Powell will be giving his first meeting and Press Conference as the new Fed Chairman in March, his steady hand looks to be focused on continuing the work of predecessor Janet Yellen of ‘gradual rate rises. I expect GBPUSD to trade within a range of 1.35-1.45 for March.
When to buy Australian Dollars in March
GBPAUD rates are up at some of the best levels we have had since the EU Referendum 20 months ago as Sterling finds support and the Australian Dollar weakens. The Australian Dollar is much weaker owing to the reduced chance of higher interest rates down under.
The Reserve Bank of Australia (RBA) is being carefully monitored for their attitudes to raising interest rates and we get some of the first news of this on the 6th March when they meet. We get with this the RBA Rate Statement which can often be more telling as we get guidance and information on future interest rate policy.
The RBA had been expected to raise interest rates last year, but are refraining from doing so as initial fears over inflation rising have cooled. A key issue has been wage growth which has finally risen prompting the RBA to be less concerned about a reduction in living standards from the rising Inflation levels.
The Chinese economy is also a big driver on the Australian Dollar as Chinese demand for raw materials is a key driver on the Australian economy. The Chinese economy is performing well but just lately there is a belief the pace of growth could be slowing which will mean less economic activity in Australia.
The latest Labour market data on the 22nd could be a key influence for the Reserve Bank of Australia.
For March the RBA meeting on the 6th is key as are the meeting minutes released on the 20th. We also have the latest Labour market data on the 22nd which will be a key influence for the RBA for its relation to wage growth.
Of importance for the GBPAUD rate will be UK developments on the Brexit, notably the 22nd and 23rd EU Summit. That final week of March could be very interesting with the US Interest rate decision too.
The performance of the US Dollar against the Aussie can have a big effect on GBPAUD rates. Generally speaking as the US Dollar strengthens the Aussie weakens and vice versa. With so many pieces of data that week we could be in for some big movements on GBPAUD.
I foresee us operating within a range of 1.75-1.85 for the month of March.
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