• Audere Research

Foreign Exchange Analysis ~ 1 August 2022

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GB Pound

Sterling gained on majors last week as negative headlines overseas weighed on EUR and USD.


Movements

GBPUSD started the week at 1.2008 and lacked direction during the first trading sessions. It then gained 1.2% on Wednesday and continued the trend to touch a 1-month high on Friday (1.2245), before closing at 1.2201 for a weekly gain of 1.61%.


GBPEUR opened at 1.1766 and appreciated for 4 consecutive sessions, peaking at 1.1985 (3-month high) on Thursday before lowering slightly in Friday’s session. The pair closed the week at 1.1916 for a weekly gain of 1.27%.


Movement rationale

With a lack of major market data ahead of the Interest Rate announcement this week, the Pound moved largely in line with risk appetite. On Monday, the currency made small advances on majors, but gained momentum on Tuesday with a 0.9% move on the EUR - largely due to the European energy crisis. The pair continued to climb to a near three-month high on Thursday when it reached 1.1985. By mid-week, GBP had also strengthened 1% against the USD as markets reacted to the prospect of a rate hike slowdown in the US. The Pound reversed some of its gains during Friday’s session, albeit holding onto the majority of the week’s rally. All eyes this week look to the expected 50bp interest rate increase on Thursday.


Week ahead

Rhetoric from the BoE this week will be used as insight into the pace of future interest rate hikes in H2 2022.


Calendar

Monday 9.30am | Manufacturing PMI

Wednesday 9.30am | Composite PMI

Thursday 12pm | BoE Interest Rate Decision


US Dollar

The Dollar moved away from multi-year highs as markets ramp up recession bets.


Movements

EURUSD opened at 1.0205 ahead of a volatile week. On Tuesday, athe low of 1.0107 was reversed on Wednesday before smaller movements took place in the latter half of the week. The pair closed at 1.0238 for a weekly gain of 0.32%.


GBPUSD started the week at 1.2008 and lacked direction during the first trading sessions. It then gained 1.2% on Wednesday and continued the trend to touch a 1-month high on Friday (1.2245), before closing at 1.2201 for a weekly gain of 1.61%.


Movement rationale

The Dollar failed to move decisively in either direction on Monday as market participants acted cautiously in the build-up to the interest rate decision. Despite this, decisive gains were made against the Euro on Tuesday due to ongoing Eurozone energy problems. On Wednesday, the Fed delivered the most aggressive tightening in more than a generation to fight inflation, unanimously raising rates by 75bp for the second straight month, in line with expectations. However, the Dollar lost ground against major currencies after the announcement as the accompanying statement stated: “spending and production have softened”. With growth fears potentially limiting the trajectory of future US interest rate hikes, the statement put downward pressure on the Dollar. In the latter half of the week, the second quarter of contracting GDP (-0.9%) considerably missed the consensus, thrusting America into a “technical” recession. Despite this, the US currency remained largely unchanged as critics pointed to the strong labour market as evidence that the US is not yet in a recession.


Week ahead

As the National Bureau of Economic Research is yet to declare a recession, weak employment data next week could spark the beginning of USD turbulence amid recession fears.


Calendar

Monday 3pm | Manufacturing PMI

Wednesday 3pm | Services PMI

Thursday 1.30pm | Initial Jobless Claims

Friday 1.30pm | Nonfarm Payrolls


Euro

The Euro struggled to recover from a worsening energy crisis despite stronger than expected GDP and inflation data.


Movements

EURUSD opened at 1.0205 ahead of a volatile week. On Tuesday, a low of 1.0107 was reversed on Wednesday before smaller movements took place in the latter half of the week. The pair closed at 1.0238 for a weekly gain of 0.32%.


GBPEUR opened at 1.1766 and appreciated for 4 consecutive sessions, peaking at 1.1985 (3-month high) on Thursday before lowering slightly in Friday’s session. The pair closed the week at 1.1916 for a weekly gain of 1.27%.


Movement rationale

Europe started last week with news that the Nord Stream pipeline would be limited to 20% capacity by Russia. European gas rose 12% on the back of the news and German business sentiment touched the lowest since the start of the pandemic. EU countries have agreed to a 15% reduction for the next 8 months putting further pressure on the Euro. For GBPEUR, the pair steadily moved higher until Friday when a small reversal took place. For EURUSD the week was more volatile. On Tuesday the pair lost over 1%, while on Wednesday the single currency gained 0.8% following the interest rate announcement in the US. Thursday’s session saw the pair trading rangebound as European consumer confidence came in line with expectations. Finally, markets were surprised on Friday as Eurozone GDP and inflation data came out higher than expected. GDP, while weakening at 4%, beat the 3.4% consensus and inflation touched 8.9%. This benefited the currency ahead of the weekend as the figures provide the ECB with more room to make further interest rate hikes in the future.


Week ahead

As gas shortages continue, further pressure will be placed on the Euro in the coming weeks.


Calendar

Wednesday 10am | Retail Sales (Jun)


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