• Audere Research

Foreign Exchange Analysis ~ 07 November 2022

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GB Pound

The Pound ended its recent rally following a dovish BoE announcement.


Movements

GBPUSD started the week at 1.1560 dropping to a low of 1.145 on Monday. After a muted Tuesday, Sterling extended losses midweek shedding 2.7% between Wednesday and Thursday’s session. The pair did reverse some losses on Friday regaining 1.13 to close the week at 1.1397 for a weekly loss of (-1.41%).


GBPEUR opened at 1.1654 oscillating between 1.158 and 1.166 for the first half of last week. On Thursday the pair dropped 1.3% and extended losses on Friday to touch a low of 1.137. The pair closed the week at 1.1428 for a weekly loss of (-1.94%).


Movement rationale

The Pound had a poor start to last week falling 1.2% against the Greenback on Monday’s session. On Tuesday the BoE began its first auction marking an end to the 13 years of monetary stimulus. The sale of 750m short-maturity securities failed to affect currency markets with GBPEUR and GBPUSD both trading rangebound. Currency price action was likely muted on Tuesday as market participants looked ahead to the FOMC’s interest rate announcement on Wednesday. Following the hawkish comments from the Fed GBPUSD dropped 0.8%. Sterling’s weakness was amplified on Thursday following the UK’s interest rate announcement. While the 75bp hike, the biggest in 30 years had been priced in, the accompanying statement put downward pressure on GBP. Painting a bleak outlook for the UK economy, Governor Bailey pushed back against current forecasts of future rate trajectory saying, “rates are set to go up less than currently priced in”. Consequently, cable dropped to a 2-week low (1.115) and GBPEUR shed 1.3%. GBPUSD managed to reverse Thursday’s losses, regaining 1.13 on Friday, when the dollar fell broadly against other currencies.


Week ahead

Weak growth on Friday poses further downside risk for the Pound.


Calendar

Tuesday 00:01am | Retail Sales (Oct)

Friday 7am | GDP (Q3)


US Dollar

The Dollar benefitted from a hawkish interest rate announcement midweek. However, gains were reversed on Friday following disappointing economic data and hopes the Chinese economy may reopen soon.


Movements

EURUSD opened the week at 0.9919 losing 0.8% on Monday. Price action was muted on Tuesday but resumed the downtrend on Wednesday. The pair lost 1.2% between Wednesday and Thursday, touching a low of 0.972. Demand for risky assets increased on Friday causing EURUSD to gain 2.1% to close the week at 0.9971 for a weekly gain of 0.15%


GBPUSD started the week at 1.1560 dropping to a low of 1.145 on Monday. After a muted Tuesday Sterling extended losses midweek shedding 2.7% between Wednesday and Thursday’s session. The pair did reverse some losses on Friday regaining 1.13 to close the week at 1.1397 for a weekly loss of (-1.41%).


Movement rationale

Following a poor week for safe-haven assets, the Greenback reversed losses on Monday gaining on a basket of majors. The change in risk appetite failed to carry on in Tuesday’s session as markets became cautious ahead of the Fed announcement on Wednesday. The interest rate announcement marked the fourth consecutive 75bp rate hike. While the move was fully priced in ahead of the meeting, Powell’s pushback against the notion of a Fed pivot caused the Dollar to advance against risk currencies. Powell stated that while future interest rate increases might not be as large, “the ultimate level of interest rates will be higher than previously expected”. As markets digested the news on Thursday, EURUSD dropped back below 0.98 and Cable fell 1.9%. Finally, on Friday nonfarm payrolls show mixed results, coming in in higher than expected (+261k In October) whilst showing signs of a slowdown, a decline in wage growth and unemployment rate rising from 3.5% to 3.7%. The greenback reacted negatively to the data, on the view that the Fed could slow down its monetary tightening with GBPUSD and EURUSD gaining 1.8% and 2.1% respectively.


Week ahead

All eyes look toward the US midterms on Tuesday.


Calendar

Thursday 12:30pm | CPI (Oct)


Euro

Monday’s growth and inflation data signalled to market participants the economic fragility of the Eurozone. However, a strong second half of the week benefitted the Euro.


Movements

EURUSD opened the week at 0.9919 losing 0.8% on Monday. Price action was muted on Tuesday but resumed the downtrend in the second half of the week. The pair lost 1.2% between Wednesday and Thursday, touching a low of 0.972. Demand for risk assets increased on Friday causing EURUSD to gain 2.1% to close the week at 0.9971 for a weekly gain of 0.15%


GBPEUR opened at 1.1654 oscillating between 1.158 and 1.166 for the first half of last week. On Thursday the pair dropped 1.3% and extended losses on Friday to touch a low of 1.137. The pair closed the week at 1.1428 for a weekly loss of (-1.94%).


Movement rationale

Monday marked a data-heavy day for the Eurozone. Preliminary Q3 GDP came in line with consensus (2.1%) albeit drastically lower than Q2 (4.1%). On top of the weak growth picture, inflation data showed no signs of slowing. October inflation beat expectations again touching 10.7% (Vs 10.2% consensus), with Germany posting 11.6%. Slowing growth and rising prices put downward pressure on EURUSD which proceeded to break beneath 0.99 on Monday. After a muted Tuesday session, EURUSD consolidated losses midweek following the US interest rate announcement. The pair dropped to a low of 0.9729 on Thursday. For GBPEUR, the dovish BoE caused an appreciation of the single currency, breaking 1.16 on Thursday. Finally on Friday, rumours that China’s Covid-0 policy may be ending caused an improvement in risk appetite. As Europe is one of China’s largest trading partners the news caused an improvement of risk appetite for the Euro.


Week ahead

If China announces an end to its Covid policy, there could be potential for the Euro to appreciate against majors.


Calendar

Tuesday 10am | Retail Sales (Sep)




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