• Audere Research

Foreign Exchange Analysis ~ 11 April 2022

Read via Portal


GB Pound

The Pound had a volatile week against the Dollar despite strong GDP print.


Movements

GBPUSD opened at 1.3131 and after a relatively quiet start, where it reached a high of 1.3168, it began moving lower, dropping for the first time in two weeks below 1.30. It hit a 16-mnth low on Friday (1.2982) before closing at 1.3019 for a weekly loss of -0.85%.


GBPEUR opened at 1.19 and steadily moved higher, breaking back above the 1.20 level and reaching a 2.5-week high of 1.2035 during the early hours of Friday. It then gave back most of the gains to close at 1.1935 (+0.3%).


Movement rationale

Due to the light economic calendar in the UK, movements of the pound last week can largely be attributed to events occurring abroad. GBPUSD fell to the lowest since mid-March caused by the increasingly hawkish monetary policy by the Federal Reserve. The FOMC minutes detailed a hawkish stance which benefitted the Dollar. On the other hand, gains made by GBP against EUR seemed to be the result of the 5th set of sanctions. As the war continues in Ukraine the Euro area has been hit disproportionately harder than other global economies with the fifth set of sanctions being no exception. Despite this mixed performance in currency markets for the pound, in equities, the FTSE 100 hit a 7-week high on Friday.


Week ahead

With a busy economic calendar next week, volatility may arise from GDP, inflation and unemployment rate surprises.


Calendar

Monday 7am | Gross Domestic Product (Feb)

Tuesday 7am| ILO unemployment Rate (Feb)

Wednesday 7am | Consumer Price Index (Mar)


US Dollar

The Dollar posted its largest weekly percentage gain in a month, supported by Federal Reverse's hawkish message on monetary tightening.


Movements

EURUSD opened at 1.1034 and progressively traded lower, hitting 1.0836 of Friday (1-month low) before slightly recovering and closing at 1.0907 (-1.15%).


GBPUSD opened at 1.3131 and after a relatively quiet start, where it reached a high of 1.3168, it began moving lower, dropping for the first time in two weeks below 1.30. It hit a 16-mnth low on Friday (1.2982) before closing at 1.3019 for a weekly loss of -0.85%.


Movement rationale

After a resilient unemployment posting by the US at the end of the week before, the Dollar continued to make gains off the back of the FOMC minutes released last Wednesday. The report indicated the Federal Reserve seems to be ready to act quickly, with a 50bp hike becoming a greater possibility if inflation persists, also unveiling a balance sheet runoff programme of $95bn a month. To compound the gains made by USD from the hawkish announcement, the 5th set of sanctions against Russia also benefitted the Greenback. The previous week saw the Euro benefitting from progress in peace talks between Putin and Zelensky, however, last week saw EUR positivity thwarted in favour of the Dollar. Market participants perceived the new set of sanctions approved by Europe to cause further economic hardship for the Euro area, and as such, favoured the safe haven USD due to diminished risk appetite.


Week ahead

As inflation continues to influence currency markets, CPI data may increase USD volatility next week.


Calendar

Tuesday 1:30pm | Consumer Price Index (Mar)

Thursday 3pm | Retail Sales (Mar), Michigan Consumer Sentiment Index (Apr)


Euro

The euro suffered from volatility arising from sanction risk, ECB releases and polling showing a smaller gap between the French president and the far-right candidate in the first round of France's presidential election.


Movements

EURUSD opened at 1.1034 and progressively traded lower, hitting 1.0836 of Friday (1-month low) before slightly recovering and closing at 1.0907 (-1.15%).


GBPEUR opened at 1.19 at steadily moved higher, breaking back above the 1.20 level and reaching a 2.5-week high of 1.2035 during the early hours of Friday. It then gave back most of the gains to close at 1.1935 (+0.3%).


Movement rationale

As the war in Ukraine continues, the Euro made losses against the Dollar and the Pound. First, the release of the 5th set of sanctions, including the European Commission proposal of banning Russian coal imports, caused the Euro to fall. Italy even stated it was behind a ban on all Russian gas if every EU member would follow. Due to many European nation’s dependence on Russian gas, supply shortage and rising inflation continued to undermine confidence in the FX markets which was then priced into the single currency. Investors are concerned on how sanctions could affect the European growth, possibly forcing a recession in some of its member countries. Further Euro downward pressure arose from a surprise in the French elections. While the consensus believed a Macron win to be inevitable, LePen seems to be far closer than previously presumed. The FX market is therefore starting to be concerned about a potential French political turmoil, causing further volatility for the Euro. Finally, with the ECB minutes release, a divergence between ECB member’s stance on monetary policy was evident. While some believe persistent high inflation calls for a quicker monetary policy response, some are still in favour of flexibility. Because of this caution approach, the stimulus unwinding continues to have no clear end date with interest rate hikes having a similarly vague start date later in the year.


Week ahead

Whilst the rate decision is unlikely to cause any surprises in the market, the meeting will offer the opportunity to further debate the appropriate timetable of the path of policy normalization.


Calendar

Tuesday 10am ZEW Survey – Economic Sentiment (Apr)

Thursday 12:45pm | ECB Interest rate decision


Call +44 (0) 203 884 992 to discuss further with an advisor.

Recent Posts

See All

Read via Portal 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

The three dominant themes for April were the ongoing Ukraine invasion, China’s draconian Covid lockdowns and Fed tightening. As Putin prepares to “celebrate” VE day with his laughable assertion the in

Read via Portal GB Pound Revisions to the outlook for UK economic growth by the BoE meant GBP suffered heavy losses against USD and EUR. Movements GBPUSD opened at 1.2551 before a volatile mid-week. O