• Audere Research

Foreign Exchange Analysis ~ 20 June 2022

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GB Pound

The Pound made slight gains against the Dollar and light losses against the Euro.


Movements

GBPUSD opened at 1.2209 before dropping to its lowest level since March 2020 (1.1933) on Tuesday. These losses were reversed during the second half of the week, with the pair briefly touching above 1.24 before giving away part of the gains on Friday. The pair finally closed the week at 1.2242 for a limited gain of 0.27%.


thtGBPEUR opened at 1.1667 and dropped during the first half of the week below 1.15, its weakest level since May 2021. These losses were then reversed briefly touching above 1.17 on Thursday. The pair closed the week at 1.1632 for a weekly loss of -0.3%T


Movement rationale

The Pound began the week reacting to UK GDP data which missed expectations. An unexpected negative contraction (-0.3% m/m) increased market participants’ concerns over economic growth ahead of the Q2 GDP release, leading to GBPEUR and GBPUSD losses. Brexit tensions also weighed on GBP at the beginning of the last week. However, despite adjusting for inflation earnings falling more y/y than any drop since records began, employment data on Tuesday showed no signs of a slowdown. The Pound then picked up momentum gaining on USD and EUR ahead of the BoE announcement. The 25bp shift marked the fifth consecutive rate hike for the UK in an aim to slow the fastest-growing inflation since the 1980s. The BoE now predicts CPI to peak at 11% in Q4. Despite a less hawkish tone, markets perceived “some degree of further tightening may still be appropriate” as a positive outlook for the pound, which found some support toward the end of the week.


Week ahead

A busy week for economic data will likely lead to further volatility for GBP. Positive surprises for CPI and PMI may act as support for the GBP against majors.


Calendar

Wednesday 7am | CPI (May)

Thursday 9:30am | PMI (Jun)

Friday 7am | Retail Sales (May)


US Dollar

The Dollar suffered minor losses against EUR and GBP.


Movements

EURUSD opened at 1.0468 trading rangebound around 1.04 in the first half of the week. On Thursday the pair gained 1% before partly reversing the movement on Friday to close the week at 1.0522 for a weekly gain of 0.56%.


GBPUSD opened at 1.2209 before dropping to its lowest level since March 2020 (1.1933) on Tuesday. These losses were reversed during the second half of the week, with the pair briefly touching above 1.24 before giving away part of the gains on Friday. The pair finally closed the week at 1.2242 for a limited gain of 0.27%.


Movement rationale

The Dollar started the week on the back of inflation data shocking market participants into a hawkish re-adjustment on the US interest rate expectations. Because of this, safe-haven currencies were favoured on Monday and Tuesday’s sessions. On Wednesday, the FOMC announced a 75bp rate hike suggesting US monetary policy is focused on inflation above full employment. However, the immediate reaction following the statement was a fall of USD due to comments over the diminished likelihood for future 75bp rate hikes. The Greenback then lost against the Pound on Thursday due to the BoE rate hike and a slew of negative US domestic data. As markets continue to digest the monetary policy decisions of major economies the Dollar may be susceptible to a risk on repricing going into next week.


Week ahead

Any PMI surprises next week will likely be another indicator of US macroeconomic trends for market participants.


Calendar

Thursday 1:30pm | Initial Jobless Claims (Jun 17) | 2:45 pm | PMI (Jun)

Friday 2pm | Consumer Sentiment Index (Jun)


Euro

The Euro staged small gains on GBP and USD.


Movements

EURUSD opened at 1.0468 trading rangebound around 1.04 in the first half of the week. On Thursday the pair gained 1% before partly reversing the movement on Friday to close the week at 1.0522 for a weekly gain of 0.56%.


GBPEUR opened at 1.1667 and dropped during the first half of the week below 1.15, its weakest level since May 2021. These losses were then reversed briefly touching above 1.17 on Thursday. The pair closed the week at 1.1632 for a weekly loss of -0.3%


Movement rationale

Market participants started the week with a risk-off mood which caused the Euro to drop below 1.05 on Monday. On Tuesday, the ECB announced an unscheduled meeting to discuss recent volatility in member nations’ bond yields; this lead them to stating they would pursue new and existing anti-fragmentation tools to address higher borrowing costs for many European governments. This news acted as further downside pressure for the Euro. For GBPEUR the Euro recovered its early-week losses on Wednesday while EURUSD managed to make gains on Thursday’s session. Economic data did little to act as a support for the single currency, as Industrial production and inflation came out in line with consensus. With President Lagarde’s speech on Monday setting the tone for Euro price movements next week, any shift in the narrative may lead to volatility.


Week ahead

President Lagarde’s speech will likely hint to the ECB’s outlook. The speech may affect the Euro’s stability ahead of the PMI print on Thursday


Calendar

Monday 2pm | ECB’s President Lagarde speech

Wednesday 2pm | Consumer Confidence (Jun)

Thursday 9am | PMI (Jun)


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