• Audere Research

Foreign Exchange Analysis ~ 18 July 2022

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GB Pound

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


Movements

GBPUSD opened at 1.1949 dropping to a low of 1.1865 on Monday. After trading rangebound midweek, the pair decreased on Thursday by half a percent before closing the week at 1.1981 for a weekly gain of 0.27%.


GBPEUR opened the week at 1.1819 before consecutive losses from Tuesday to Friday. The pair closed the week at 1.1788 for a weekly loss of -0.27%


Movement rationale

Despite governor Bailey of the Bank of England holding a hawkish tone stating, “there are more options on the table than another 25bp”, there was little support for GBP on Monday which lost 1.15% to USD. A major cause of volatility for the Pound last week was political uncertainty. Rishi Sunak won the first round of the Conservative leadership contest with 88 votes, knocking out Jeremy Hunt and Nadhim Zahawi. There is further potential for GBP price swings until the next leader is decided in September. Midweek, markets digested the news of strong GDP data. After the shock -0.3% released last month, May’s 0.5% figure comfortably beat expectations. The data supported GBPUSD which traded rangebound on Wednesday. The UK economic calendar was quiet for the latter half of the week meaning GBP faced downward pressure from risk-off sentiment in currency markets. GBP went into the weekend posting losses against majors.


Week ahead

Inflation data will be used as insight into interest rate hikes at the next BoE meeting. Markets currently price in a 66% chance of a 50bp rate hike.


Calendar

Tuesday 7am | Unemployment rate (Jun)

Wednesday 7am | CPI (Jun)

Friday 7am | Retail Sales (Jun) 9.30am | PMI (Jun)


US Dollar

USD hit multi-year highs against majors following CPI data surprising to the upside.


Movements

EURUSD opened at 1.0108 dropping to 0.999 on Tuesday. After consolidating around 1.00 midweek, the Euro recovered going into the weekend to close at 1.0163 for a gain of 0.54%.


GBPUSD opened at 1.1949 dropping to a low of 1.1865 on Monday. After trading rangebound midweek, the pair decreased on Thursday by half a percent before closing the week at 1.1981 for a weekly gain of 0.27%.


Movement rationale

The dollar went into last week on the back of solid jobs data posted the Friday prior. Because a stronger labour market allows the Fed to front-load rate hikes more than other central banks, the dollar outperformed majors on Monday. GBPUSD reached a two-year low and the DXY index hit a 20-year high. On Tuesday, EURUSD broke below parity for the first time since 2002 after disappointing Eurozone sentiment data. Downward pressure on EURUSD was then amplified on Wednesday when US CPI data beat expectations touching 9.1% YoY (consensus: 8.8%). Following the release, US Interest Rate Futures priced in a 44% chance of a 100bp rate hike at the Fed’s next meeting, a raise that has not occurred since 1981. In the latter half of the week, Fed Bullard calmed interest rate predictions saying the base case for the fed is 75bp. The dollar closed the week losing ground against GBP and EUR despite positive retail sales data (1% v 0.8% expected).


Week ahead

A surprise in PMI data at the end of next week will be used as further stimulus for the 75 v100bp debate.


Calendar

Thursday 1.30pm | initial jobless claims | Manufacturing Survey

Friday 2:45 | PMI


Euro

Although the Euro gained on the Pound, EURUSD hit 20-year lows.


Movements

EURUSD opened at 1.0108 dropping to 0.999 on Tuesday. After consolidating around 1.00 midweek, the Euro recovered going into the weekend to close at 1.0163 for a gain of 0.54%.


GBPEUR opened the week at 1.1819 before consecutive losses from Tuesday to Friday. The pair closed the week at 1.1788 for a weekly loss of -0.27%


Movement rationale

The Euro started last week with downward pressure from the ongoing energy crisis. Russia announced its 10-day maintenance closure of a key gas pipeline on Monday shifting sentiment to risk-off. This was apparent on Tuesday when equities, commodities, Brent and crypto were all down with EURUSD dropping below 1.00 (last reached in December 2002). One cause of the drop below parity was the large surprise to the downside for eurozone consumer sentiment. With consensus around --32.8, a release of -51.1 shows consumers’ fears over an impending recession are growing. Because currency markets have high demand for EURUSD at 1.00, the pair hovered rangebound for the remainder of the week. For GBPEUR, the Euro had a stronger week, gaining on the Pound for 4 consecutive days. Although 25bp is almost certain at next week’s ECB meeting, high HICP data on Monday could increase the chances of a 50bp rate hike later in the year.


Week ahead

With a busy economic calendar next week, expect volatility if inflation surprises to the upside.


Calendar

Tuesday 10am | HICP (Jun)

Wednesday 3pm | consumer confidence (Jul)

Thursday 1.45pm | ECB Interest Rate Decision 1.45pm | ECB Press Conference

Friday 9am | PMI (Jul)


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