• Audere Research

Foreign Exchange Analysis ~ 19 April 2022

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GB Pound

Inflation data sparked high volatility in the UK currency.


Movements

GBPUSD opened at 1.3019 and after a slow start, where it slipped to its lowest level since November 2020 (1.2973), it jumped to 1.3140 on Thursday. The pair then quickly reversed the movement to close at 1.2993 for a weekly loss of 0.2%.


GBPEUR opened at 1.1935 and progressively moved higher reaching 1.2120 on Thursday, the highest level in 5 weeks. It finally closed at 1.2062 for a solid weekly gain of 1.06%.


Movement rationale

Sterling started the week weak, reaching a 1.5 year low against the Dollar on Wednesday, as geopolitical events continue to dominate markets, favouring the Greenback. Good UK unemployment data on Tuesday of 3.8% did little to swing the Pound against major rival currencies. Sterling’s fortune turned on Wednesday after CPI data was released in the UK. The inflation report posted a 7% annualised increase, beating consensus and reaching a 30-year high which can be largely explained by continued fuel price inflation. The UK currency reacted positively to the strong figures and appreciated substantially against peers over the following two days. Money markets are now pricing in a 25-basis points rate hike by the BoE next month. However, entering the end of the week and with trading floors in Europe and the US closed to celebrate the Easter break, Sterling lost momentum, reversing all gains against the Dollar while retracing partly against the Euro.


Week ahead

Volatility in the Pound may arise from a more hawkish Governor Bailey in his Thursday and Friday speeches.


Calendar

Thursday 5:30pm | Governor Bailey speech

Friday 7am | Retail sales, 8:30am | CIPS Manufacturing PMI, 3.30pm | Governor Bailey speech


US Dollar

The Dollar continued to be supported by interest rate expectations.


Movements

EURUSD opened at 1.0907 and steadily continued the downtrend, hitting an 11-month low at 1.0756 and closing decisively lower (-1.25%) at 1.0771.


GBPUSD opened at 1.3019 and after a slow start, where it slipped to its lowest level since November 2020 (1.2973), it jumped to 1.3140 on Thursday. The pair then quickly reversed the movement to close at 1.2993 for a weekly loss of 0.2%.


Movement rationale

Currency markets last week, were largely driven by inflation. The UK, US and the Eurozone all released inflation data and the USD benefitted the most. CPI increased 8.5% year on year while core inflation slowed on the previous month. Market participants digested this softening of core prices as a potential that the Fed’s monetary policy may be successfully curbing rising prices. Hawkish rhetoric continues to support the Dollar, with the FOMC leaving 50bp rate hike on the table and St Louis Fed President Bullard arguing a 75bp rate hike is an option. Also, the war in Eastern Europe continues to support the Greenback against major rivals. EUR/USD finished the week close to a 2-year low. Putin said that talks had hit a dead-end which meant the Dollar was favoured over the Euro which is perceived to be riskier the longer the war continues. Biden also stated Russia was committing genocide which further fuelled volatility.


Week ahead

A light economic calendar with look at Powell speech for further evidence of a hawkish Fed leading to possible further USD gains.


Calendar

Thursday 1:30pm | Initial Jobless Claims (Apr 15), 6pm | Fed chair Powell speech


Euro

The Euro suffered losses against major peers.


Movements

EURUSD opened at 1.0907 and steadily continued the downtrend, hitting an near 2-year low at 1.0756 and closing decisively lower (-1.25%) at 1.0771.


GBPEUR opened at 1.1935 and progressively moved higher reaching 1.2120 on Thursday, the highest level in 5 weeks. It finally closed at 1.2062 for a solid weekly gain of 1.06%.


Movement rationale

The ECB faces a choice between inflationary fears or negative shocks to economic growth. While the Fed and BoE believe rising prices must be hit early with increased interest rates, Lagarde and the ECB maintain the belief that price rises will slow and interest rate hikes can wait. The interest rate decision which took place on Thursday, may not have surprised market participants, but did however continue to fuel depreciation of the Euro against USD and GBP. With the World Bank revising down its global growth forecast to 3.2% from 4.1% in January due to the war in Ukraine, changes in monetary policy may have some detrimental effects on global economic growth. Alongside interest rates, the EUR appeared to briefly benefit from round one of the French elections. Macron will now face Le Pen on April 24th.


Week ahead

Further Euro volatility may arise from price data and the PMI release on Friday.


Calendar

Wednesday 10am | Industrial Production (Feb)

Thursday 10am | Eurostat Consumer Price Index (Mar), Consumer Confidence (Apr)

Friday 9am | S&P Global Composite PMI (Apr)


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