Weak Sterling Proving Short-Term Opportunity Or Major Change Of Direction?

Posted by Nogger - a legend in his own mind at 11:18 | Categorized as

06/04/16 -- EU grains closed mostly a touch lower, with a stronger euro of little assistance to the Paris market.

At the finish, front month May 16 London wheat was down GBP0.45/tonne at GBP106.00/tonne, May 16 Paris wheat was down EUR2.25/tonne to EUR154.25/tonne, Jun 16 Paris corn was unchanged at EUR154.00/tonne and May 16 Paris rapeseed slipped EUR0.25/tonne to EUR369.00/tonne.

Sterling weakness relative to the euro is "influenced by data indicating slower UK economic growth in the first quarter of 2016 and also uncertainty over the approaching UK referendum on EU membership," says the HGCA.

It's a pity that UK customs data is slow to let us know if UK exports have continued to be robust this past few months, after a relatively sluggish start to 2015/16 they picked up in Dec/Jan, but we are in the dark since then.

Anecdotal data I am hearing would suggest that maybe exports have been better than expected. Watch this space.

Carryover stocks at the end of 2015/16 will still be large, but maybe not quite as large as the trade was thinking before Christmas. Back then the banks were all forecasting the pound to outperform the euro, and even USD, in Q1 of 2016.

Barclays for example had the GBP/EUR exchange rate at 1.45 in Q1 this year, some 15% below where we currently trade.

Last night's close of 1.2388 was the lowest GBP/EUR valuation since June 2014.

Many are now lining up to forecast a test of the 1.22-1.20 region in the coming weeks ahead.

The sterling/euro exchange rate is expected to remain volatile in the months ahead and will continue to be an important influence of UK grain and oilseed prices," added the HGCA.

There doesn't appear to have been any fundamental change in stance or market opinion as to the chances of a "Leave" vote succeeding, it's all just newspaper talk.

This still smacks fairly heavily then of the Scottish "Yea/No" referrendum vote last year, and the turmoil this caused in the currency markets prior to "a race that was too close to call" rapidly proving to be anything but that.

If the same happens again then don't rule out a rapid period of sterling appreciation, resulting in a sting in the tail for UK export hopes late in the season and to begin with in 2016/17.