• Audere Research

Foreign Exchange Analysis ~ 10 October 2022

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GB Pound

Sterling received a temporary boost after a tax plan reversal. However, the currency then resumed its downtrend.


Movements

GBPUSD started the week at 1.1202 gaining 2.7% on Monday and Tuesday touching a high of 1.1495. Gains were reversed midweek breaking back below 1.12 on Thursday and touching 1.105 on Friday. The pair closed the week at 1.1105 for a weekly loss of -0.87%.


GBPEUR opened at 1.1421 regaining 1.15 on Monday. For the remainder of the week, Euro gained steadily on Sterling breaking 1.13 on Wednesday. The pair shed another 0.5% on Thursday. After oscillating around 1.13-1.14 in Friday’s session GBPEUR closed the week at 1.1412 for a weekly loss of 0.08%.


Movement rationale

GBPUSD gained 1.4% in Monday’s session as risk sentiment improved from the all-time lows seen the week before. Similarly, GBPEUR gained 1.1%, supported by Kwasi Kwarteng announcing a U-turn in the proposed plan to cut the highest income tax bracket. The UK had a quiet week in terms of macroeconomic data with PMI on Monday failing to surprise markets (48.4 V 48.5 consensus). Tuesday marked the sixth consecutive day of Cable gains with Sterling close to hit 1.15 on the back of a weaker Dollar. In the latter half of the week, the Pound resumed its downtrend with recessionary headwinds weighing on the currency. Ratings agencies S&P and Fitch lowered their outlook for the UK from stable to negative. Consequently, uncertainty in the UK’s outlook caused GBPEUR to drop from 1.15 on Wednesday to a low of 1.135 on Friday. Similarly, GBPUSD shed 3% in the latter half of the week closing back in the 1.10s range.


Week ahead

GDP on Wednesday will be used as insight into the UK’s slowing growth. Expect volatility if data surprises to the downside.


Calendar

Tuesday 7am | Unemployment rate

Wednesday 7am | GDP MoM


US Dollar

The Dollar outperformed most majors in the latter half of the week as risk appetite diminished.


Movements

EURUSD opened the week at 0.9807 trading rangebound on Monday. On Tuesday the pair gained 1.6% reaching parity before erasing all gains and moving into negative territory in the second half of the week. The pair closed the week at 0.973 for a weekly loss of -0.79%.


GBPUSD started the week at 1.1202 gaining 2.7% on Monday and Tuesday touching a high of 1.1495. Gains were reversed midweek breaking back below 1.12 on Thursday and touching 1.105 on Friday. The pair closed the week at 1.1105 for a weekly loss of -0.87%.


Movement rationale

The Dollar underperformed in the first half of last week as market participants lowered their forecasts for US interest rate hikes. With risk sentiment improving in Tuesday’s session, EURUSD gained 1.6% briefly touching party. However, gains were short-lived as on Wednesday, news from the OPEC+ meeting caused the safe-haven Greenback to gain against most of rival currencies. OPEC+ announced output is being reduced by 2 million barrels a day in an aim to stabilise the price of crude which has fallen 30% since March. GBPUSD and EURUSD both shed 2% between Wednesday and Thursday as the markets bet on another strong nonfarm payrolls report on Friday. Although US job growth slowed to 263,000 from 315,000 in August, the print beat expectations and the unemployment rate dropped to 3.5% from 3.7%. While inflation stays high and the job market remains relatively healthy, the Fed will likely continue its aggressive interest rate hiking cycle.


Week ahead

Any details of the next interest rate hike in the FOMC minutes on Wednesday could cause a shift in Dollar demand.


Calendar

Wednesday 7pm | FOMC minutes

Thursday 1.30pm | CPI

Friday 1.30pm | Retail sales


Euro

The Euro had a mixed week, losing ground against the Dollar but closing broadly unchanged versus the Sterling.


Movements

EURUSD opened the week at 0.9807 trading rangebound on Monday. On Tuesday the pair gained 1.6% reaching the parity before erasing all gains and moving into negative territory in the second half of the week. The pair closed the week at 0.973 for a weekly loss of -0.79%.


GBPEUR opened at 1.1421 regaining 1.15 on Monday. For the remainder of the week, Euro gained steadily on Sterling breaking 1.13 on Wednesday. The pair shed another 0.5% on Thursday. After oscillating around 1.13-1.14 in Friday’s session GBPEUR closed the week at 1.1412 for a weekly loss of 0.08%.


Movement rationale

On Monday EURUSD was supported by the energy intervention package approved by the EU. Details included a proposed cut in consumption and a new windfall tax on energy companies. However, Sterling’s strength caused GBPEUR to gain 1.1% in the session. On Tuesday, relatively hawkish comments from Madame Lagarde lead to increased demand for the single currency, which briefly touched parity against the Dollar, gaining 1.6%. EURUSD reversed its course on Wednesday and Thursday’s sessions with PMI and retail sales data failing to support the single currency. PMI came in line with consensus (48.1 V 48.2 in August) and retail sales data slipped to -2% from -1.2% the month before. Finally, minutes from the ECB’s interest rate announcement released on Friday did little to drive EURUSD demand. However, GBPEUR consolidated losses for the 4th consecutive day, driven by a weaking Sterling.


Week ahead

A quiet economic calendar could mean Euro price action is driven by risk appetite this week.


Calendar



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