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Foreign exchange analysts at Deutsche Bank - the Frankfurt-based multinational investment bank - are backing the British Pound to benefit from month-end flows.
With the end of the month, quarter and first half of 2019 approaching, foreign exchange markets could well be subject to currency flows triggered by fund managers looking to balance the currency exposure of their portfolios as well as other currency-related demands made by various financial institutions.
"This month we see GBP and CAD as best placed to benefit from month-end hedging flows, with portfolio managers likely to be net buyers of sterling given the relative underperformance of the FTSE 100," says Shreyas Gopal, a strategist with Deutsche Bank's London office.
It is noted the FTSE 100 is up just 3.5% in June, but, global markets in general have been "buoyed by increasing expectations of rate cuts across the world, equity markets have posted significant gains this month and have largely reversed losses from May," says Gopal.
The Deutsche Bank month-end model works by adjusting equity market returns (in USD terms) for cross-border equity holdings and the relative liquidity of each currency.
Using this, they can rank the eight currencies in order of the predicted price impact coming from the month-end FX hedging of equity portfolios.
Recent analysis from Deutsche Bank suggests the best time to execute these month-end trades is at 3pm London time on the final trading day of the month, closing out the position one hour later.
"This month we see GBP and CAD as most likely to appreciate," says Gopal.
A month-end boost for the Pound would be welcomed as the currency has struggled over the past four weeks, as evidenced above.
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