GB Pound
Political drama in Westminster and concerns about the health of the economy brought further volatility to the Pound.
Movements
GBPUSD opened at 1.21 before a 1.2% fall on Tuesday. A small recovery was staged in the latter half of the week to close at 1.1949 for a weekly loss of -1.25%.
GBPEUR opened the week at 1.1632 and then made consecutive gains until Thursday. Despite a small retracement in Friday’s session, the pair closed at 1.1819 for a weekly gain of 1.61%.
Movement rationale
With limited movements on Monday due to Independence Day across the Atlantic, FX volatility was on the rise when markets returned on Tuesday. Although manufactory data managed to slightly improve to 53.7 (from 53.1) last month, a rush of ministerial resignations combined with increased fears of an economic recession put downward pressure on the Pound. For GBPUSD a drop of 1.6% brought the pair to the lowest level since the first COVID lockdown in March 2020, whilst against the Euro, the UK currency managed to hold above the 1.16 level. Going into the latter half of the week, political uncertainty intensified concluding on Thursday with the resignation of Prime Minister Boris Johnson. Despite this, the GBPUSD traded higher on Thursday, recouping some of the losses against the Dollar. Against the Euro, the Sterling held up far better, hitting a 6-week high, as worries about a recession and the ongoing energy crisis continue to weigh on the single currency. All eyes this week look toward GDP data, the speech from Governor Bailey, and any changes to the leadership race for the Conservatives.
Week ahead
Weakening GDP would further amplify fears of a looming recession.
Calendar
Monday 3:15pm | Governor Bailey speech
Tuesday 7am | Retail sales
Wednesday 7am | GDP (May)
US Dollar
The dollar continued to rally as demand for safe-haven assets soars.
Movements
EURUSD opened at 1.0522 before dropping 1.5% on Tuesday. The pair’s weakness continued mid-week hitting multi-decade lows. The pair ended the week at 1.0108, losing - 3.93%
GBPUSD opened at 1.21 before a 1.2% fall on Tuesday. A small recovery was staged in the latter half of the week to close at 1.1949 for a weekly loss of -1.25%.
Movement rationale
Following a public holiday on Monday, the Dollar began last week with news that the Biden administration plans to change some Trump-era China sanctions. On Tuesday, as markets made a bid for safe-haven currencies, the USD gained 1.2% on GBP and 1.5% on EUR. This put the Dollar in the strongest position since 2020 against a basket of majors stemming from global recessionary fears amid an ongoing energy crisis. The hawkish FOMC minutes on Wednesday combined with ISM Services data, which beat expectations, lead to a continuation of the Greenback rally. The Dollar Index hit a 20-year high with EURUSD similarly reaching the lowest level since 2002 (closing the week below 1.02). As markets continue to price in 75bp in the next FOMC meeting, there is further room for USD outperformance next week.
Week ahead
Market participants will be using inflation data next week as an insight into the likelihood of a 75bp rate hike in this month’s FOMC meeting.
Calendar
Wednesday 1:30pm | CPI (Jun)
Thursday 1:30pm | Initial Jobless Claims
Friday 1:30pm | Retail sales (Jun) 3pm | Michigan Consumer Sentiment Index (Jul)
Euro
The Euro suffered heavy losses against majors.
Movements
EURUSD opened at 1.0522 before dropping 1.5% on Tuesday. The pair’s weakness continued mid-week hitting multi-decade lows. The pair ended the week at 1.0108, losing - 3.93%
GBPEUR opened the week at 1.1632 before consecutive gains until Thursday. Despite a small retracement in Friday’s session, the pair closed at 1.1819 for a weekly gain of 1.61%.
Movement rationale
The Euro went into last week following record-breaking inflation data of 8.6% (over 4 times the ECB’s 2% target). The Euro suffered a sharp decline against majors on Tuesday following an intensification of Europe’s energy crisis. Worker strikes in Norway meant gas hit a 4-month high. With many commodity prices falling, a sharp rise in European gas futures meant the Euro suffered against major peers. EURUSD fell 1.5% to the lowest level in 20 years. On Wednesday Retail sales unexpectedly fell from 4% to 0.2%, further intensifying the outlook of European stagflation. As markets digested the news of the assassination of the Japanese Prime Minister on Thursday, risk currencies, such as the EUR, continued to fall. Monetary policy notes on Thursday showed the likelihood of further rate hikes, meaning market participants will be using updates to the energy crisis to assess the likelihood of a European recession.
Week ahead
Eurozone sentiment next week will be a useful measure of how inflationary pressures are affecting the economy in the Euro-zone.
Calendar
Monday | Eurogroup meeting
Tuesday 8am | EcoFin meeting 10am | Economic Sentiment (Jul)
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