• Audere Research

Foreign Exchange Analysis ~ 15 August 2022

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GB Pound

GBPUSD held onto midweek gains despite weak GDP data on Friday. GBPEUR was less volatile.


Movements

GBPUSD started the week at 1.2097 making small gains on Monday and Tuesday. On Wednesday GBP gained 1.2% touching a high of 1.2278. The pair briefly dropped below 1.21 on Friday before closing the week unchanged at 1.2104.


GBPEUR opened at 1.1875 moving lower 0.2% across Monday and Tuesday. This loss was reversed on Wednesday touching a high of 1.1890. Euro gained again in the latter half of the week, closing at 1.1829 for a weekly loss of -0.39%.


Movement rationale

The Pound started last week on the front foot following positive like-for-like retail sales data. The consensus for July was an 8.4% contraction in sales following -1.3% in June. Despite a massive surprise to the upside, the 1.6% increase in July wasn’t enough to move GBPUSD or GBPEUR decisively. Following rangebound sessions on Monday and Tuesday, Sterling gained 1.2% against the Dollar on Wednesday after US CPI data. With inflation at the forefront of market participants’ minds, Liz Truss outlined the possibility of increasing the 2% inflation target if elected. While this would allow for further growth and fewer tax cuts, critics suggest the effects of sustained untameable inflation could be catastrophic. Finally, on Friday, UK Q2 GDP showed a 0.1% contraction in economic growth. As this confirms the grim revision of growth forecasts the BoE released the week before, a recession looks increasingly likely by year-end. Consequently, GBP lost to G10s going into the weekend as market participants look to predict when the UK hiking cycle will end.


Week ahead

Unemployment and inflation data will be used as insight into future BoE interest rate decisions.


Calendar

Tuesday 7am | unemployment Rate

Wednesday 7am | CPI

Friday 7am | Retail sales


US Dollar

The dollar underperformed against majors as peak inflation seems to have passed.


Movements

EURUSD opened at 1.0187 gaining on the dollar in small amounts on Monday and Tuesday. On Wednesday the pair increased 0.84% touching a high of 1.0369. Some gains were lost on Friday to close the week at 1.0232 for a weekly gain of 0.44%.


GBPUSD started the week at 1.2097 making small gains on Monday and Tuesday. On Wednesday GBP gained 1.2% touching a high of 1.2278. The pair briefly dropped below 1.21 on Friday before closing the week unchanged at 1.2104.


Movement rationale

Strong jobs data at the end of the previous week supported the dollar at the start of last week as market participants continue to price in aggressive monetary policy in Q3. However, due to a lack of market swaying data in the first half of last week, USD traded rangebound against majors on Monday and Tuesday. This was likely due to cautious trading of the dollar ahead of Wednesday’s CPI print. YoY CPI decreased to 8.5% in July from 9.1% in June, surprising markets (consensus 8.7%). As lower inflation shows rising interest rates are starting to seep through America’s economy, markets immediately lowered the odds of a 75bp hike in September from an 80% likelihood to 40%. This put pressure on the dollar which lost 1.2% against the pound 0.84% against the euro. As markets digested the print on Thursday, price action was less volatile. On Friday, USD closed the week recovering from the midweek losses. Consumer sentiment improved from 51.5 to 55.1 in August which supported the greenback going into the weekend.


Week ahead

FOMC minutes on Tuesday have the potential to cause volatility for the dollar.


Calendar

Tuesday 1.30pm | Retail sales 7pm | FOMC minutes


Euro

With recessionary fears weighing on the Euro, the currency struggled to hold onto gains going into the weekend.


Movements

EURUSD opened at 1.0187 gaining on the dollar in small amounts on Monday and Tuesday. On Wednesday the pair increased 0.84% touching a high of 1.0369. Some gains were lost on Friday to close the week at 1.0232 for a weekly gain of 0.44%.


GBPEUR opened at 1.1875 moving lower 0.2% across Monday and Tuesday. This loss was reversed on Wednesday touching a high of 1.1890. Euro gained again in the latter half of the week, closing at 1.1829 for a weekly loss of -0.39%.


Movement rationale

Europe had no important macroeconomic data last week ahead of GDP and inflation this week. While the EURUSD managed to advance incrementally due to dollar weakness, there was downward pressure from the ongoing energy crisis. There was downward pressure in the first half of last week as Japan and South Korea began contending for supplies ahead of Q4. To amplify this, on Monday reports from Norway suggested energy exports would decrease. Finally, on Tuesday, two of Europe’s largest transport rivers began to dry up due to high temperatures. This caused a bottleneck for coal, diesel, and food transporters. Despite this, US CPI on Wednesday benefitted the Euro which gained 0.84% on Wednesday. For GBPEUR, Monday and Tuesday’s gains were reversed following the US data. After four days of consecutive gains, EURUSD reversed going into the weekend losing 0.57%. All eyes look toward the busy week ahead for Europe.


Week ahead

A surprise in growth or inflation this week would likely create volatility for the Euro. Strong GDP and high inflation would mean further rate hikes from the ECB.


Calendar

Tuesday 10am | Economic sentiment

Wednesday 10am | GDP (Q2)

Thursday 10am | HICP



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