• Audere Research

Foreign Exchange Analysis ~ 13 June 2022

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GB Pound

The Pound had a volatile week against the Euro and suffered losses against the Dollar.


Movements

GBPUSD opened at 1.2526 barely breaking above or below 1.25 in the first half of the week. The latter half saw a Pound selloff with GBPUSD falling nearly 1.5% in Friday’s session before closing the week at 1.2209 for a weekly loss of -2.53%.


GBPEUR opened at 1.1674 gaining at the start of the week to a high of 1.1777 on Tuesday. Gains were reversed on Wednesday before a similar-sized reversal took place on Thursday. The pair finally closed the week unchanged at 1.1667.


Movement rationale

The UK began last week with political uncertainty putting downward pressure on the Pound. However, the 211 votes of confidence for Boris Johnson meant losses for the Pound were limited. GBP built on this in Tuesday’s session appreciating against USD and EUR. These gains however were short-lived. GBPUSD moved up every day going into the latter half of the week. Driven by concerns for a UK recession later this year, which could slow the BoE’s efforts to fight inflation by raising rates, and amplified by US inflation data, the Pound entered a 3-week low dropping beneath 1.24. As risk sentiment swayed toward the Dollar last week, GBPEUR was more of a mixed bag. The Sterling, despite a hawkish interest rate announcement from the ECB, rallied against the Euro on Thursday. After a lack of influential macroeconomic data over the last two weeks, the abundance next week may cause volatility for the GBP. If the interest rate decision is decisively hawkish the Pound may see a resurgence.


Week ahead

The BoE will struggle to sway market participants into a more risk-on mentality. Nevertheless, expect volatility if unemployment, GDP or the Interest rate decision surprises the consensus.


Calendar

Monday 7am | GDP (MoM) | Industrial/Manufacturing production (Apr)

Tuesday 7am | Unemployment 3m (Apr)

Thursday 12pm | Interest Rate decision


US Dollar

The dollar closed the week in a strong position as US inflation accelerates.


Movements

EURUSD opened at 1.0729, trading narrowly until Thursday. EURUSD had two consecutive losses to end the week where the pair dropped beneath 1.07 then 1.06 and even 1.05 to close the week at 1.0463 for a loss of -2.48%


GBPUSD opened at 1.2526 barely breaking above or below 1.25 in the first half of the week. The latter half of the week saw a GBP selloff with GBPUSD falling nearly 1.5% in Friday’s session before closing the week at 1.2209 for a weekly loss of -2.53%.


Movement rationale

On the back of strong jobs data released the week before, the US started last week with news that Biden could be easing oil sanctions against Iran and Venezuela in an aim to lower energy inflation. GBPUSD and EURUSD were trading rangebound in the first half of the week. However, the ECB meeting on Thursday sparked a selloff in risky assets and a flight to quality which benefited. The main cause for Dollar outperformance last week came on Friday following CPI data. The 8.6% YoY increase which beat the previous and consensus numbers could mean the Fed is more likely to use 3 consecutive 50b rate hikes. The news for the US wasn’t all good on Friday as consumer sentiment is now at the lowest in 5 decades, however, the market was relatively unaffected by the data.


Week ahead

The Dollar would benefit from any members voting for a 75bp rate hike next week as market participants would use this as a sign for more aggressive monetary policy tightening at upcoming meetings.


Calendar

Tuesday 1.30pm | Producer Price Index ex Food & Energy (YoY)

Wednesday 1.30pm | Retail Sales (MoM) | FOMC interest rate decision


Euro

The ECB interest rate announcement put downward pressure on the Euro against majors.


Movements

EURUSD opened at 1.0729, trading narrowly until Thursday. EURUSD had two consecutive losses to end the week where the pair dropped beneath 1.07 then 1.06 and even 1.05 to close the week at 1.0463 for a loss of -2.48%


GBPEUR opened at 1.1674 gaining at the start of the week to a high of 1.1777 on Tuesday. Gains were reversed on Wednesday before a similar sized reversal took place on Thursday. The pair finally closed the week unchanged at 1.1667.


Movement rationale

For EURUSD the first half of the week was relatively calm with the pair struggling to find momentum in either direction. However, as ongoing growth concerns effect both the Euro area and the UK, Monday and Tuesday’s sessions for GBPEUR were rather volatile. Having lost against the Pound on Tuesday, Wednesday’s GDP data helped reverse Euro losses. The 5.4% YoY growth, which comfortably beat the consensus, pointed to the possibility of harsher and quicker rate hikes in the near term. On Thursday the ECB interest rate announcement stated APP purchases will end on July. Following this, 25bp incremental hikes will likely be taken in July and September. Despite this news markets perceived the statement as a bare minimum effort to lower inflation and proceeded to stage a Euro selloff, fuelled by a renewed deteriorating risk sentiment in the market, pushing EURUSD near the YTD low.


Week ahead

A busy economic calendar coinciding with interest rate decisions elsewhere will likely result in price swings for the euro.


Calendar

Tuesday 10am | Economic Sentiment (Jun)

Wednesday 10am | Industrial Production (MoM)

Friday 8am | HICP (MoM)


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