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This morning’s manufacturing news brought the UK back with a jolt from the balmy long weekend. It was revealed that the sector had slowed to its weakest in seven months in April, this is particularly disastrous as we were banking on the recovery in the manufacturing sector being the one which would winch us back to safety. The idea that the manufacturing recovery could already be losing steam will also be a worry for the BoE interest rate decision on Thursday, as the confidence which has been growing recently was shattered. Sterling took a nosedive on the back of this news and is currently wallowing in the marshlands of the 1.11’s. The dive in the rate wasn’t helped by the eurozone PPI figure which came out better than expected and which hurt sterling even more. If you are hoping for a smidgeon of hope then the output prices from the manufacturing sector remained elevated, recording the third highest reading ever.

As mentioned the BoE and ECB are yet again meeting to discuss interest rates on Thursday, this comes at the same time as the referendum on the alternative vote, so it will be an interesting day! The markets are still a bit confused as to what to expect with the rate decision, but expectations are that we won’t see a rate hike until the autumn. It is Andrew Sentance’s last meeting on Thursday with the MPC and I am sure he will voice his opinion that the committee’s credibility would be undermined if it allowed inflation prices to drift upwards for too long.

The monthly CBI survey has shown that consumers were energetic on the UK high streets in April, as they purchased more than they did this time one year ago. However, overall sales are still considered poor for this time of year. Department stores seem to be doing well, whereas motor vehicles are facing a rough road ahead.

This will be my last update for World First, as I leave here on Friday. Thank you so much for your support and opinions over the past year. My successor Joe, will take up the mantle on Monday.

 Jeremy’s Trade of the Week

This week’s trade of the week is a ‘Risk Reversal’. A risk reversal allows you to hedge yourself close to the market but in turn for a reduced upfront cost, it gives you 100% benefit up to a pre-determined level.

The client will benefit in all upward movement up to a capped level. Should the GBPUSD rate be below 1.6300 they are able to buy dollars at 1.63 but if the spot rate is above 1.72 on the expiry however then they have to purchase dollars at 1.72. If the rate is in-between the two levels then the clients can purchase the dollars in the spot market and is not obligated to do anything.

This strategy has an upfront cost of 1.5% and allows a hedge with a nominal WCR of only 2.2 cents from current market price . It is also relevant for buyers of sterling and sellers of other currencies.