• Audere Research

Foreign Exchange Analysis ~ 06 September 2022

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GB Pound

GBP closed August 4.5% down against the Dollar and 3% down against the Euro.


Movements

GBPUSD started the week at 1.1743 and steadily continued the downtrend to reach Monday morning the lowest level since 1985 (1.1442). It finished the week with a weekly loss of -2.28% at 1.1475.


GBPEUR opened at 1.1708 dropping 0.6% on Tuesday and 0.7% on Wednesday. On Thursday the pair retraced above 1.16 gaining 0.5% before resuming the downtrend on Friday. GBPEUR finally closed the week at 1.1580 for a weekly loss of -1.09%.


Movement rationale

Despite the bank holiday on Monday, Sterling’s price action was far from muted. A risk-off tone benefitted the Dollar and the dampening of energy fears in Europe caused GBPEUR to drop 0.7%. Similarly, on Tuesday, economic growth concerns and an inflation forecast from Goldman Sachs peaking at 22% weighed on the Pound. GBPEUR lost 1.2% in the first two sessions of the week. The combination of recessionary pressure, an easing of energy prices, and a hawkish ECB caused the pair to break 1.16 on Wednesday, touching a low of 1.1553. Thursday’s session marked the end of August which transpired to be the worst month for GBPUSD since 2016. GBPEUR slightly improved on Thursday on the back of UK manufacturing PMI beating expectations (47.3 Vs 46 consensus). However, in the last part of the week the Pound was again under pressure, especially against the Dollar, hitting a new multi-decade low.


Week ahead

The monetary policy report hearing on Wednesday may give insight into the magnitude of September’s interest rate decision. Any hint at a 75bp hike would benefit GBP in the near term.


Calendar

Monday 12:01am | retail sales 9.30am | Composite PMI

Wednesday | BoE Monetary Policy Report Hearings


US Dollar

The Dollar continued to rally against the Pound. EURUSD was more volatile.


Movements

EURUSD opened the week at 1.0029 closing above parity on Tuesday and Wednesday’s sessions. In the second half of the week, the pair lost some ground, touching a new multi-decade low on Monday morning at 0.9877. It closed the week at 0.9900 for a weekly loss of -1.29%


GBPUSD started the week at 1.1743 and steadily continued the downtrend to reach Monday morning the lowest level since 1985 (1.1442). It finished the week with a weekly loss of -2.28% at 1.1475.


Movement rationale

The Dollar outperformed several majors on Monday as markets digested the assertive Powell speech from the week before. The USD Index hit a 20-year high as markets priced in elevated interest rates “for some time”. However, the lower risk appetite wasn’t enough to weigh on the Euro which gained on the dollar in the first half of last week, touching a high of 1.079. Data in the US was a mixed bag with employment on Wednesday surprising to the downside. Employment change was 132k against 288k consensus. Manufacturing PMI on Thursday beat expectations which caused EURUSD to reverse back below parity, GBPUSD to drop to 1.1500, and USDJPY to touch 25-year lows. In Friday’s session, the Dollar temporarily lost ground against majors on the back of poor nonfarm payroll data, before once again resuming the uptrend and hitting new multi-decade highs against USD and EUR


Week ahead

Jobs data on Thursday will be another insight into how well America’s economy is coping with the aggressive monetary policy tightening.


Calendar

Tuesday 3pm | Services PMI

Wednesday 1.30pm | Trade Balance

Thursday 1.30pm | Initial jobless claims


Euro

The Euro reversed some of its recent downtrend as the energy crisis briefly de-escalated.


Movements

EURUSD opened the week at 1.0029 closing above parity on Tuesday and Wednesday’s sessions. In the second half of the week, the pair lost some ground, touching a new multi-decade low on Monday morning at 0.9877. It closed the week at 0.9900 for a weekly loss of -1.29%


GBPEUR opened at 1.1708 dropping 0.6% on Tuesday and 0.7% on Wednesday. On Thursday the pair retraced above 1.16 gaining 0.5% before resuming the downtrend on Friday. GBPEUR finally closed the week at 1.1580 for a weekly loss of -1.09%.


Movement rationale

After the low of 0.9900 last week, EURUSD spent the first half of last week fluctuating around parity. Ursula von der Leyen announced plans for an instrument “which ensures that the gas price will no longer dominate the electricity price”. The statement quelled fears, lowered energy prices, and supported the single currency. Consumer confidence on Tuesday was unchanged from the previous month at -24.9, allowing the Euro to gain on majors despite lowering risk appetite. On Wednesday, the Euro moved up 0.4% against the Dollar and 0.7% against the Sterling due to another hot inflation print. HICP for the Eurozone touched 9.1% YoY in August, giving the ECB further stimulus to use an aggressive interest rate hike in next week’s meeting. Although the hawkish monetary forecast and lower energy prices benefitted the Euro on Wednesday, support was short-lived. EURUSD shed 1% in Thursday’s session as European recessionary headwinds took back control of investor sentiment, pushing the pair at its lowest level in 20 years (0.9877) on Monday morning.


Week ahead

All eyes look toward the busy calendar in Europe. Expect volatility if the interest rate decision falls short of market expectations.


Calendar

Monday 10am | Retail sales

Wednesday 10am | GDP (Q2)

Thursday 1.15pm | Interest Rate Decision



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