Nick Colling, Cambridge Mercantile Group
Nick Colling, Senior FX Analyst, Cambridge Mercantile Group, says while UK corporates should enjoy the recovery, they need to keep an eye on the Federal Reserve.
The US economy is something that affects many businesses in the UK, and as it continues to emerge from the dark times, corporates around Britain will be eager to see how this pans out for the exchange rate.
In recent months, as Janet Yellen has taken over from the outgoing Ben Bernanke as chair of the Federal Reserve, sterling has hit multi-year highs against the dollar.
Indeed, following the epic rally in GBPUSD over the past nine months, interest from UK corporates in the currency market has heightened. A quick look at a chart for this currency pair suggests that the $1.70 level is a key level, as it represents post-global financial crisis highs established in 2009. We have not seen $1.70 in 2014 yet, but should the data from the UK continue in a positive manner the possibility is there.
It’s the US economy, stupid
The key risk to a move up to $1.70, however, centres around the future of the US economy. With much of the excitement about the UK recovery being priced in over the last 9-months, the prospects for GBPUSD look to hinge on what’s happening in the US.