How to Hedge Forex

The Pound Pummeled Again


The Pound remains on a weak footing, ebbing lower versus the Euro today, though so far remaining above the three-week lows it saw against the common currency yesterday. 0.9053 was the inter-day high May 29 and a close today round current (0.9050) levels would see a close not seen since March 26 when the pair closed at 0.9064. Cable has also moved below yesterday’s 18-day low, breaching the key 1.2400, to trade down to S1 at 1.2375. The UK currency is set to complete a second consecutive week of declines against the Dollar and Euro, and other currencies.

UK retail sales data, released ahead of the London interbank open, posted an above-consensus rebound in May, though too little market impact as this was the fully expected scenario, and with economic data largely playing second fiddle as markets look to social and economic reopening amid concerns about second waves of coronavirus infections.

Sterling fell sharply yesterday, more than reversing an initial “on-the-fact” buy reaction to the BoE’s policy announcement, with the longer term trend for Sterling remaining intact. The BoE’s lack of mention on the possibility of negative interest rates had been the principal driver of the pound’s post-announcement bounce, but the central bank still expanded QE by GBP 100 bln while pledging a further expansion if needed, and warned about the risks stemming from a second wave of infections in reopening developed economies, and the ongoing virus spread across developing-world countries. Another negative for the UK currency has been the decline in global stock markets this week, to which Sterling has exhibited a strong positive correlation with in the pandemic era thus far. Concerns also remain on the EU-UK trade front, despite leaders having earlier in the week declared a new intensity in discussions. At issue is that the two sides look unlikely to be able to make a deep and comprehensive trade deal, and more likely an agreement comprising of limited arrangements, which will leave both sides worse off, or not deal at all, which would see the UK switch a large portion of its trade to less favourable WTO terms.

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Stuart Cowell

Head Market Analyst

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