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Chapdelaine's Borthwick Says Fade EUR/GBP: Overdone (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Bim Box and Kathleen
• 0:05
  Speaker 1: Hayes on Bloomberg Radio. He was just a wee lad
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  Speaker 1: when the pound was as weak as it is today,
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  Speaker 1: the pound trading at one twenty seven against the US dollar.
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  Speaker 1: Douglas Borthwick is managing director and the head of FX
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  Speaker 1: at Chapter Lane and Company and he joins us now.
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  Speaker 1: Doug Borthwick, thank you very much for being with us
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  Speaker 1: thirty one years. The dollar has not been this strong
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  Speaker 1: against the British pound for thirty one years. What is
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  Speaker 1: going on and what is going to happen? The last
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  Speaker 1: time the sterling was this week was when I actually
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  Speaker 1: came over to this country. Is rather astounding, and I
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  Speaker 1: think there's a number of things that play. Obviously Brexit
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  Speaker 1: is the main one. Today's move and what we've really
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  Speaker 1: seen when we went to the one level was really
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  Speaker 1: on the back of Tersa May, the Prime Minister putting
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  Speaker 1: down her foot and essentially saying that to companies are
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  Speaker 1: on their own, which I think came as a bit
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  Speaker 1: of a shock to the financial services market, which makes
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  Speaker 1: up around twelve of the UK economy at one point
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  Speaker 1: one million jobs. So what this means is that when
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  Speaker 1: it comes to the negotiation um all of the British
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  Speaker 1: exit from Europe, what will happen is that instead of
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  Speaker 1: financial companies being at the forefront and what it's called
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  Speaker 1: financial passporting rights, instead it looks like trade is going
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  Speaker 1: to be the main factor. What Tersa May also did
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  Speaker 1: as she came out with the dates of when they
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  Speaker 1: think that breaks will happen, when she'll actually pull Article
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  Speaker 1: fifty and it looks like that's going to be by
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  Speaker 1: a March of next year. So we've now got a
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  Speaker 1: time frame of when things are going to happen. We're
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  Speaker 1: also now seeing what's being prioritized by the British government
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  Speaker 1: and I think that the market didn't really appreciate that today.
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  Speaker 1: Well Hard Brex said, that's what people have been wondering about,
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  Speaker 1: and great Bloomberg coverage of this today, one story pointing
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  Speaker 1: out that Teresa May is taking a very different stance
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  Speaker 1: than her predecessor, day the Cameron. But of course she's
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  Speaker 1: the one who's you know, got to carry out the
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  Speaker 1: quote unquote will the people and that's brags it. So
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  Speaker 1: that is, but there's also two different types of strategies.
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  Speaker 1: David Cameron was trying to go in there with a
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  Speaker 1: strategy where he expected that Brexit would never pass, and
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  Speaker 1: so he is a certain pitch. And then Theresa May
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  Speaker 1: has the job where Brexit has passed and she'd rather
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  Speaker 1: than having fluffing colors, she actually has its all the
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  Speaker 1: cold hard reality. I think that that's a significant difference.
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  Speaker 1: I think that Theresa May has a great challenge ahead
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  Speaker 1: of her. I think that the market, though, if it's
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  Speaker 1: trading today off of something that could happen in really
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  Speaker 1: two and a half years time, it's probably a little
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  Speaker 1: bit ahead of itself. And if you look at euros sterling,
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  Speaker 1: over the past a couple of years, eurosterling has jumped
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  Speaker 1: about twenty six percent, which is rather astounding if you
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  Speaker 1: think of what's happening in the in Europe compared to
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  Speaker 1: what's happening in the US. And that's really since about
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  Speaker 1: the end of two thousand fifteen, euro sterling has gone
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  Speaker 1: up to now levels that are astounding given the help
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  Speaker 1: of the British economy versus the health of European economies. Alright,
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  Speaker 1: so given a lot of this irrational behavior, Douglas Borthwick,
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  Speaker 1: what's the best trade right now? Where would you be
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  Speaker 1: looking yeah, I really do believe that you were. Sterling
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  Speaker 1: is very much overdone and we're training around this point
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  Speaker 1: eight eight level. Today. There's really two pieces of news.
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  Speaker 1: One that there's a discussion that the e c B
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  Speaker 1: is discussing tapering their rand stative easing. Now that article
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  Speaker 1: saw the Euro start to charge higher at the same
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  Speaker 1: time as Sterling was moving lower on the back of
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  Speaker 1: the Theresa May comments. So you've had both legs here
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  Speaker 1: being pushed in opposite directions, both knee jerk reactions off
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  Speaker 1: of news that really shouldn't come as any surprise. The
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  Speaker 1: news story regarding the e c B that they would
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  Speaker 1: enter into taper before ending que That shouldn't be a
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  Speaker 1: surprise to anybody. What would be a surprised as if
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  Speaker 1: they actually tapered, they actually ended que and I don't
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  Speaker 1: believe the ECB is anywhere close to ending QUI. So
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  Speaker 1: we've had a big move today in the Euro on
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  Speaker 1: the back of really some fluff news that has very
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  Speaker 1: little resemblance upon reality today and then Sterling this move
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  Speaker 1: lower as well. We know that the Brexit is going
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  Speaker 1: to happen, We know that Sterling would probably be a
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  Speaker 1: little bit weaker if anything though a weaker sterling should
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  Speaker 1: be seen as a positive by every G twenty country
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  Speaker 1: in the world, because every country in the world is
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  Speaker 1: trying to have a weaker currency. Yeah, but that's what
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  Speaker 1: I just found it. But that's what I thought. It
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  Speaker 1: was interesting because it's almost as if the markets are
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  Speaker 1: doing the work for central banks. Well, the market is
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  Speaker 1: doing the work for sterling. It really so if you
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  Speaker 1: think about the Japanese, they're doing everything they can to
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  Speaker 1: weaken the end. In the U S we're doing quantitative
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  Speaker 1: easing as well. It's an extent, but you've certainly see
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  Speaker 1: quantity of using in Europe, you seen quantity of using
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  Speaker 1: in the UK, quantity of using in Japan, all really
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  Speaker 1: to stimulate the economy and weaken their currency as a consequence.
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  Speaker 1: The UK doesn't really have to do that much quantitative
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  Speaker 1: using anymore. All you need to do is say I
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  Speaker 1: don't want to be part of a trade pack. And
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  Speaker 1: you see your currency weekend, well, and of course it's
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  Speaker 1: a big weekend, and I think that that's what I thought.
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  Speaker 1: You look at the headlines on the Bloomberg and uh,
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  Speaker 1: you know, one of the headlines is, oh my gosh,
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  Speaker 1: handringing the pound is falling so low, but UK DOC
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  Speaker 1: gauges hit simultaneous highs for the first time since nine Yes,
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  Speaker 1: a very weak currency dug. Also, the economic data have
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  Speaker 1: held up reasonably well since the Brexit. Certainly the negative
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  Speaker 1: impacts may flow through. You could also say, well, Mark
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  Speaker 1: Carney's out of the Bank of England. He hit it hard,
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  Speaker 1: he said he would, and maybe that helped create confidence.
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  Speaker 1: I think this is the other interesting part of this
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  Speaker 1: equation though, that this is actually potentially just what the
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  Speaker 1: UK economy needs now. But I can't imagine other central
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  Speaker 1: bankers sitting around and saying, oh, this is terrible. Sterling
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  Speaker 1: is weaker. Everyone is trying to weaken their currency at
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  Speaker 1: least has been, and that's really been what quantity of
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  Speaker 1: easing has been all about, and the UK found a
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  Speaker 1: way to do it. It's it's happening. You're seeing the
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  Speaker 1: economy not greater as people that has expected would actually
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  Speaker 1: stay stable or even grow a little bit faster. Obviously,
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  Speaker 1: any change to their economy or a GDP change will
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  Speaker 1: be seen later on as Brexit reality comes into being,
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  Speaker 1: But right now nobody knows if it's gonna be Brexit heavy,
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  Speaker 1: Brexit light, you know, it's still very much on the
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  Speaker 1: table and in the cards, and anything that Teresa made
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  Speaker 1: right now is discussing really she has to pitch an
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  Speaker 1: idea towards Europe. Now Europe right now they certainly would
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  Speaker 1: like to have the British banking system in Frankfurt or
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  Speaker 1: in Paris, and they're certainly pitching these ideas to these
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  Speaker 1: financial companies. At the same time, London wants to keep
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  Speaker 1: the financial companies there. So there's a lot of different
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  Speaker 1: pitches we're hearing different color. All of it, I think
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  Speaker 1: is just a strategy towards when we actually get to
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  Speaker 1: the negotiating table, which won't happen until next year, all right.
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  Speaker 1: So that gets put off is they we were talking earlier.
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  Speaker 1: Maybe you don't know about, but we're talking earlier about gold.
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  Speaker 1: And I was wondering if gold plays a role in
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  Speaker 1: the currency market the way you see it. Well, if
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  Speaker 1: if the story that came out earlier that the ECB
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  Speaker 1: was looking to taper their clumsy of using purchases, obviously,
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  Speaker 1: if there's less quantitivity to easing in the world, you'll
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  Speaker 1: see the gold price take a hit lower. Uh. If
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  Speaker 1: there's more quantity of us and you see gold start
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  Speaker 1: to rallying, but it's good. Gold obviously moves up or
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  Speaker 1: down based upon the markets perceived amount of currency in circulation.
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  Speaker 1: So there's a lot of currency in circulation. That means
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  Speaker 1: that there's more inflation. If there's more inflation, people would
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  Speaker 1: rather their own gold because they see that as a
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  Speaker 1: way to keep their assets in one piece. So if
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  Speaker 1: you see a tapering of one city using if you
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  Speaker 1: see the US start to raise rates, you'd expect to
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  Speaker 1: see gold come off somewhe Well, of course we did.
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  Speaker 1: We saw a gold fall through. It's the lowis in June.
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  Speaker 1: Alert Amester yesterday the Cleveland Fed saying, hey, don't even
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  Speaker 1: discount November. It's possible for rate hike. She would vote
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  Speaker 1: for it potentially if the economy is strong. And then
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  Speaker 1: Jeff Lackard followed through today, what is your bet there, Doug,
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  Speaker 1: I think we'll see a rate hike in the US
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  Speaker 1: by the end of the year. I think that that's
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  Speaker 1: uh pretty much in the cards right now. But we
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  Speaker 1: haven't seen the economic data yet between now and none. Okay, well,
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  Speaker 1: and that well, they'll all agree the economic data are crucial.
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  Speaker 1: Friday is the big jobs report. You want to Tune in,
• 7:50
  Speaker 1: start early, go around the clock on Bloomberg Radio Television.
• 7:54
  Speaker 1: Keep your eyes on the Bloomberg because that job's report
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  Speaker 1: could be a major market mover as much or more
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  Speaker 1: than never. Thanks to Doug Borthwick, Manager Director, head of
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  Speaker 1: Foreign Exchange at Chapter Lane and Co. I'm Kathleen Hayes,
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  Speaker 1: along with pim Fox movers and shakers coming up the
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  Speaker 1: market clothes on taking stock. This is Bloomberg.