Sterling Stars, China Crisis

Whilst FX markets paint a rosier picture for UK importers, after a decent couple of sessions for the Pound; China is where investors are focussing their attention. The Chinese Yuan hit an 11-month low against the USD, sparking fears of further trade war escalation with the US. Ahead of the UK bank holiday weekend, all eyes will be on Fed Chairman Powell as he addresses fellow delegates at Jackson Hole. Its widely expected that hints at further stimulus for the US economy will permeate through his rhetoric.

GBP

Back to the UK, thin liquidity helped spark a mini rally for GBP crosses. We mentioned the likes of GBPNZD yesterday that surged through 1.9200, and GBPUSD also became a beneficiary moving higher a full 150bp across the day. But that move has abated, and the end of week close will give markets a more realistic take on recent Brexit manoeuvres.

These moves higher for the Pound seem to have been few and far between of late, and any move should be seen by the import community as opportunity to lock in better levels. The backdrop and bias, however, seems heavily biased towards exporters. The prospect of a technical UK recession looms heavy on the horizon.

In terms of approach for UK businesses, target orders could represent the best opportunity ahead of Jerome Powell’s speech today. If the US Federal reserve takes a dovish stance on US interest rates, then a weakening of the USD in the short term could proffer better levels in GBPUSD in particular. Please speak to our team as to where the most sanguine targets could be over the weekend. With UK markets closed on Monday, moves in GBP could be exacerbated in Asian and New York sessions.

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