The US Fed has delivered its 2nd consecutive hike of 0.75%, maintaining its position as one of the most aggressive central banks in an ongoing battle to control inflation worldwide. However, financial markets have reacted with relief as the Fed Chair hinted about the slower pace of future rate hikes - both equity and bond markets performed strongly, and the US dollar has weakened against all major currencies.
With Pound Sterling finally reversing its slide against the greenback, chances that we will see at least a short-lived continuation of the Pound’s strength vs the US dollar are improving from the technical standpoint, with the first strong resistance level coming in 1.26 - 1.27 area. Nevertheless, we remain in quite an uncertain environment where economic cross-winds of inflationary pressures and the risks of the recession make the job of any central bank very difficult, and the dangers of policy surprises and errors are very high. This is why we like using the current bounce as an opportunity for clients with future USD payables to add the US dollar advance purchase gradually.
It is a common mistake to wait to buy the full amount required at a certain target level. Yet, experienced investors and treasurers use a technique of layering, gradually adding to the position and removing the risks of missing the target because of a sudden trend reversal. For a hypothetical example, if someone had target to purchase US dollars at 1.2300 but has a large, risky amount to cover, it may be prudent to split the amounts in 3 parts, with 1.2200, 1.2300, and 1.2400 targets for each respective third. This helps increase the chances of getting better protection from the rest of the falling rates without additional costs.
As always, feel free to reach out to our team if you require support with managing your currency needs.