• Audere Research

Foreign Exchange Analysis ~ 14 November 2022

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GB Pound

Despite weak growth data, Sterling rallied against the Dollar. For GBPEUR, the week was more mixed.


Movements

GBPUSD started the week at 1.1397 before regaining 1.15 on Monday. After a muted Tuesday the pair shed 1.4% on Wednesday. In the latter half of the week Cable rallied, gaining 2.8% on Thursday and 1.2% on Friday. The pair closed the week at 1.1811 for a weekly gain of 3.63%.


GBPEUR opened at 1.1428 gaining 0.6% on Monday. On Tuesday and Wednesday, the pair dropped 1.2% touching a low of 1.132. On Thursday losses were reversed before a rangebound session on Friday. The pair closed the week unchanged at 1.1429.


Movement rationale

Following the appreciation of risk currencies, Cable continued its rally going into last week gaining 1.8% on Monday. On Tuesday the weaker than expected Retail Sales (1.2% V 1.5% consensus) slowed the pace of Sterling demand, causing GBPEUR to drop. For GBPUSD, price action was muted as markets looked toward the unfolding midterm results going into Wednesday. As results were confirmed in the US, markets favoured the safe haven causing Cable to drop from 1.156 to 1.133. Following US CPI data on Thursday, Cable gained 2.8% in the session. Gains were consolidated on Friday despite weak UK GDP data. Preliminary growth data recorded the UK’s first negative Quarter, confirming to many the looming recession. For currencies, GBPUSD touched 1.185, a level not seen since late August. For GBPEUR the week was more volatile as the single currency also benefitted from swings in risk appetite.


Week ahead

A busy economic calendar next week poses downside risk for the Pound. Sterling watchers will be keeping a close eye on inflation and unemployment data in the lead into Thursday’s Autumn Statement from Chancellor Hunt.


Calendar

Monday | BoE monetary Policy Report Hearings

Tuesday 7am | Unemployment Rate (Oct)

Wednesday 7am | CPI (Oct)

Friday 7am | Retail Sales (Oct)


US Dollar

The Dollar lost 4% last week on weaker-than-expected core inflation data, marking the third-worst week on record.


Movements

EURUSD opened the week at 0.9971 regaining parity on Monday. On Tuesday the pair gained 0.5% before reversing gains on Wednesday. On Thursday the pair appreciated from 0.993 to a high of 1.022. Dollar losses extended on Friday with the pair breaking 1.036. The pair closed the week at 1.0334 for a weekly gain of3.64%.


GBPUSD started the week at 1.1397 before regaining 1.15 on Monday. After a muted Tuesday the pair shed 1.4% on Wednesday. In the latter half of the week Cable rallied, gaining 2.8% on Thursday and 1.2% on Friday. The pair closed the week at 1.1811 for a weekly gain of 3.63%.


Movement rationale

The downside risk from the prospect of loosening Chinese lockdowns continued to weigh on the Dollar going into last week. EURUSD regained parity for the first time in two weeks and GBPUSD gained 1.2%. The Republicans went into the midterms on Tuesday as strong favourites, with many expecting them to take the House and Senate. As the results came out on Wednesday, the election proved to be less one-sided than expected which benefited the Greenback. The Dollar gained on the Euro and Pound in Wednesday’s session. Gains were short-lived as US inflation data on Thursday surprised to the downside, causing a depreciation of the Dollar. CPI in October decreased to 7.7% (down from 8.2% in September) causing the markets to drastically reprice Decembers’ interest rate decision (down from 75bp to 50bp). While a single piece of data is unlikely to completely change the Fed’s monetary policy, it shows the effects of higher rates may be beginning to seep into the American economy. Consequently, on Thursday and Friday, GBPUSD and EURUSD rose to multi-week highs


Week ahead

The steep move down last week could mean the Dollar enters this week oversold.


Calendar

Wednesday 1:30pm | Retail Sales (Oct)

Thursday 1:30pm | Initial Jobless Claims


Euro

The single currency had a strong week outperforming a basket of majors.


Movements

EURUSD opened the week at 0.9971 regaining parity on Monday. On Tuesday the pair gained 0.5% before reversing gains on Wednesday. On Thursday the pair appreciated from 0.993 to a high of 1.022. On Friday Dollar losses were extended with the pair breaking 1.036 The pair closed the week at 1.0334 for a weekly gain of3.64%.


GBPEUR opened at 1.1428 gaining 0.6% on Monday. On Tuesday and Wednesday, the pair dropped 1.2% touching a low of 1.132. On Thursday losses were revered before a rangebound session on Friday. The pair closed the week unchanged at 1.1429.


Movement rationale

Like most risk currencies, the Euro benefitted from news of the approval of a Chinese mRNA vaccine on Monday. EURUSD regained parity, consolidating above 1.00 on Tuesday following retail sales data. Retail sales improved to -0.6% in October (v -1.4% in September). Midweek, the EU announced a further 18bn in aid for Ukraine. For economically fragile EU members, further fiscal spending will weigh on the nations going into winter. On Thursday, EURUSD traded rangebound ahead of US CPI but rallied following the release of data. EURUSD gained 3.2% between Thursday and Friday touching a 3-month high of 1.036. On top of a dovish repricing of US interest rate forecasts, ECB members continued with hawkish comments suggesting further restrictive monetary policy is needed in Europe.


Week ahead

Weak growth data could cause markets to lower interest rate forecasts ahead of the ECB’s next meeting.


Calendar

Tuesday 10am | GDP (Q3) Preliminary





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