International Trading


Last week was an interesting one for Sterling, who is making a concerted effort not to steal the spotlight away from dollar and euro at the moment. As we know we saw the Rightmove house price index fall from -0.6% to -1.7% which was the biggest decline since December 2009. Luckily this picked up with Retail Sales posting a surprisingly strong monthly rise for July, which made it look like the slowdown emerging in the wider economy has not yet spread to the high street. July’s public borrowing figure left borrowing at extremely high levels at 44.9bn, which does not reduce the need for a fiscal tightening over the coming years. M4 money supply and Mortgage Approvals were among the fallen, with M4 slowing to 1.3% to 0.5% and mortgage approvals dropping by 1000 in July. Thanks to Retail Sales, CBI Industrial Trends and an abundance of bad euro news we saw the GBPEUR rate come over the 1.22 mark, and we are still currently lurking in these waters watching euro floundering about with a certain smugness.
All this mixed data is giving a confused message about the UK recovery, inflation gives the impression that the underlying recovery is bounding along but unfortunately this cannot be said with absolute certainty. New housing development said that the value of projects under way has fallen by £1bn in the three months to the end of July, and in general the atmosphere is damp about housebuilding. According to surveys conducted by the YouGov/Markit Household Finance Index as many as 47% of households in August expected their personal finances to worsen in the next 12 month, whereas only 25% see an improvement.
This week is fairly quiet in terms of data being released, with tomorrow seeing BBA loans for house purchase, which they hope will uplift the afore mentioned mortgage approvals.CBI on Thursday and GDP on Friday should sculpt where the rate will go from here.
Have a super week!

Jeremy’s Trade of the Week

This week’s trade of the week is a 50% participating forward. For a seller of sterling and a buyer of US dollars, this client wanted to protect themselves against any further falls in the dollar rate while allowing them the ability to benefit from upside should it present itself.
The client was able to achieve a worst case rate of 1.5150 on their option and they benefit in 50% of any upward movement i.e. on expiry should GBPUSD spot be trading 8 cents above worst case rate, the client would benefit by 4 cents and receive 1.5550. Should the GBPUSD rate be below 1.5150 however they are fully protected and get 1.5150
This strategy requires no premium, and is also relevant for sellers of sterling and buyers of other currencies. As there is a potential strengthening for sterling in the future, it provides a balanced upside for this potential, while guaranteeing a tight WCR.
Have an enjoyable week