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Carney to weaken Sterling further

The article I wrote 2 days ago (Wednesday) with regards to buying the dollar as it was having an “off” day against Sterling due to better than expected UK data would have been very profitable. Since  Wednesday, Sterling has fallen more than 250 basis points and Sterling is currently trading below the psychological $1.50 – to think it was trading at  $1.57 only a couple of weeks ago.

Volatility in the FX markets is extremely high at the moment with volumes thin and so many fundamental factors (Unrest in the Middle East, political problems in Portugal, yields >7% on bonds there, weak economic data from China etc”¦)  affecting currency movements.

Guest post by Ronnie Chopra of  Tradenext.

Yesterday, Sterling slumped over 200 basis points against the USD as the currency was sold soon after midday. At new Bank Governor, Mark Carney’s first meeting, the monetary policy committee (MPC) took the unusual step of releasing a statement alongside its interest rate decision. The statement gave a strong hint that monetary easing would continue for some time ahead and this acted as the catalyst in driving Sterling sharply lower.

With the market taking the news that there will be more quantitative easing, equity markets surged and the pound dropped like a stone. The FTSE 100 had one of its best days of the year with the FTSE 100 closing up three per cent and has extended gains this morning ahead of the important non-farm payroll figures. With the FTSE 100 currently trading around 6450, the surge since the lows of three weeks ago have been remarkable when the benchmark index was perilously close to 6000.

The FTSE 100 has a number of blue chip companies that are major US dollar earners and therefore  are major beneficiaries of weakness in Sterling with the likes of Barclays, BAE Systems, BP and Vodafone all grateful  if the pound declines as their respective earnings are higher when converted back into Sterling. Also, with a weak currency possible bid targets become cheaper for foreign predators and therefore more attractive and likely to occur.

The markets after the release of U.S non-farm payroll figures later today (BST  1.30p.m) will be extremely volatile again and movements could be over-exaggerated as many people in the US will still be on holiday after yesterday’s Independence day holiday.

See how to trade the NFP with EUR/USD

Carney has already made his mark on the markets, he surprised them yesterday and expect more to come in the near future. Sterling is expected to remain weak and it may be worthwhile to short the currency on any strength again. My target of 1.48 USD mentioned  on Wednesday looks increasingly likely of being reached in days rather than weeks now!

Ronnie Chopra

Ronnie Chopra

Ronnie has over 15 years’ experience working with financial products and started his financial career at CMC Markets in 1999 and in 2001 he joined Merrill Lynch Investment Managers (now BlackRock - the world's largest asset manager) and worked there for over four years as a RFP analyst. Since 2005, he has worked in a number of brokerage firms as a CFD and FX sales trader and market strategist. A seasoned commentator, Ronnie has appeared many times on global business channels (BBC, Bloomberg, CNBC, CNN and SKY) to discuss topics concerning the financial markets. He has written numerous business-related articles and regularly lectures.