• Audere Research

Foreign Exchange Analysis ~ 16 May 2022

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GB Pound

GBP lost further ground against the dollar while regaining brief losses against the euro.


Movements

GBPUSD opened at 1.2295, before reaching a low of 1.2261 on Monday. In the latter half of the week, the dollar continued to gain with cable reaching the lowest level since May 2020. The pair closed the week at 1.2238 for a change of -0.46%.


GBPEUR opened at 1.1675 trading around similar levels until Wednesday when the pair dropped to 1.1601. This selloff was then reversed making consecutive gains going into the weekend before closing at 1.170 for a change of 0.64%.


Movement rationale

Following last week’s interest rate announcement, market participants continued to digest the possibility of a recession predicted by the BoE . Governor Saunders’s speech did little to move the pound, meaning GBPUSD and GBPEUR failed to move decisively between Monday and Wednesday. However, this did not last as growth concerns put downward pressure on the pound ahead of Thursday’s GBP print. Following the poor GDP print (0.1% decrease in March), Cable entered a freefall almost touching a 10% depreciation in a year to date. While these gains were held by the dollar on Friday, the pound managed to recover all the losses made against the euro. If the BoE slows monetary policy tightening due to fears of a recession, there may be further downward pressure placed on GBP.


Week ahead

With a busy economic calendar including CPI data, a surprise to the downside may cause further volatility for GBP


Calendar

Tuesday 7am | Claimant Count Change (Apr) | ILO Unemployment Rate

Wednesday 7am | CPI Index (YoY) (Apr)

Friday 7am | Retail Sales (Apr)


US Dollar

The dollar continued its path of 2022 outperformance against majors.


Movements

EURUSD opened at 1.0528 sliding down to 1.0352 on Thursday, the lowest since January 2017. The pair ended the week at 1.0415 for a change of -1.07%.


GBPUSD opened at 1.2295, before reaching a low of 1.2261 on Monday. In the latter half of the week, the dollar continued to gain with cable reaching the lowest level since May 2020. The pair closed the week at 1.2238 for a change of -0.46%.


Movement rationale

Following the unemployment rate released at the end of the week before (3.6%), the focus last week was on CPI released on Wednesday. The data beat predictions by 0.2% with core inflation increasing 6.2% YoY (largely caused by airfares and new vehicles). Markets continue to predict 50bp rate hikes in the next FOMC meeting, leading participants to favour the dollar against GBP and EUR. However, while FX markets fled toward the safe-haven, fears over the ability of central banks to engineer a soft landing for inflation sparked a selloff in global equity markets. Stocks hit 18-month lows with the S&P nearly 20% away from its all-time high. Nevertheless, EURUSD hit 5-year lows with the pound underperforming similarly. While the move away from the euro can partially be attributed to the war in Ukraine, the US House passed a $40bn bill to aid Ukraine.


Week ahead

A surprise to the downside for retail sales may spark market participants to question the strength of the US economy resulting in a repricing of the dollar.


Calendar

Tuesday 13.30pm | Retail Sales (MoM) (Apr)


Euro

The euro underperformed against the dollar in the latter half of the week. GBPEUR was more volatile.


Movements

EURUSD opened at 1.0528 sliding down to 1.0352 on Thursday, the lowest since January 2017. The pair ended the week at 1.0415 for a change of -1.07%


GBPEUR opened at 1.1675 trading around similar levels until Wednesday when the pair dropped to 1.1635. This selloff was then reversed making consecutive gains going into the weekend before closing at 1.170 for a change of 0.64%.


Movement rationale

The divergence of central bank monetary policy put downward pressure on the euro as president Lagarde continues to reiterate the first EU rate hike will only take place “sometime after the end of net asset purchases”. Alongside this, the continued dispute over Russian commodities had a similar effect on the euro last week. Due to a lack of a unified European approach to the energy crisis, there was a selloff of the euro. On the one hand, German ministers have argued that Germany could handle a ban on Russian gas while the Italian PM argues paying for gas in Roubles is not in breach of EU sanctions. The result of this uncertainty for the euro was a harsh selloff with EURUSD touching the lowest level in 5 years. For GBPEUR, the euro managed to gain on the pound on Wednesday ahead of GDP data however gains were short-lived, eventually losing ground on the pound in the Thursday session. Updates on Sweden and Finland's admission to join NATO may cause volatility for the euro next week.


Week ahead

As geopolitical events dominated movements in the euro last week, market participants will look forward to next week’s busy economic calendar to see how the ECB’s stance on monetary policy has affected the European economy.


Calendar

Monday 10am | European Commission Economic Growth Forecast

Tuesday 10am | GDP (Q1)

Wednesday 10am | HICP (MoM) (Apr)

Friday 3pm | Consumer Confidence (May)


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