• Audere Research

Foreign Exchange Analysis ~ 20 September 2022

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GB Pound

Sterling hit a 37-year low against Dollar, as sentiment towards the UK currency remains weak.


Movements

GBPUSD started the week at 1.1643 and attempted a recovery on Monday, regaining the 1.17 level. However, a sharp drop on Tuesday and a progressive move lower pushed the currency to a new record-low on Friday, hitting 1.1350, the lowest level in 37 years. The pair finally closed the week with another heavy loss (-1.7%) at 1.1446.


GBPEUR opened at 1.1503 and traded rangebound during the first half of the week before dropping, reaching a 7-month low at 1.1381. It closed with a weekly loss of 0.83% at 1.1408.


Movement rationale

GBPUSD started last week gaining 0.7% in Monday’s session, backed by broad strong US dollar and reports that new UK Prime Minister, Liz Truss, is not considering triggering Article 16 of the Northern Ireland protocol, avoiding (for now) a diplomatic confrontation with the EU. However, despite some positive data releases (unemployment rate reaching the lowest level since 1974 and UK CPI showing a drop below 10% YoY), Sterling failed to gain momentum and even registered heavy losses against the Dollar on Tuesday. Consumer anxiety about high inflation and rising energy bills, combined with weak retail sales data on Friday (-5.4% V -4.2% consensus), fuelled further downward pressure on the Sterling, which reached new lows against Dollar and Euro towards the end of the week.


Week ahead

Market participants will be waiting for Thursday’s BoE meeting, where the central bank is expected to raise rates by 50bps although a 75bp hike cannot be ruled out. Any monetary policy divergence versus its US counterparty will likely drive the Pound higher or lower this week.


Calendar

Thursday 12pm | Interest Rate Decision

Friday 9.30am | PMI


US Dollar

The Dollar was able to gain on most majors, supported by the Fed’s aggressive monetary policy and positive retail sales data.


Movements

EURUSD opened the week at 1.0121 and plunged heavily on Tuesday, losing more than 2% after US inflation data came out higher than expected. It then consolidated around parity during the rest of the week, showing little fluctuations and closing with a loss of 0.86% at 1.0034.


GBPUSD started the week at 1.1643 and attempted a recovery on Monday, regaining the 1.17 level. However, a sharp drop on Tuesday and a progressive move lower pushed the currency at a new record-low on Friday, hitting 1.1350, the lowest level in 37 years. The pair finally closed the week with another heavy loss (-1.7%) at 1.1446.


Movement rationale

An improvement in risk appetite on Monday meant the Dollar lost 0.8% against the Pound and Euro as the week started. This movement was reversed on Tuesday on the back of positive CPI data. US inflation grew 8.3%, down from 8.5% the month before. As consensus was 8.1%, markets still believe the interest rate announcement will be hawkish next week, with a 75bp hike currently priced in. As a result, GBPUSD fell from 1.17 to a low of 1.14 with EURUSD also losing 1.4%. An unexpected rebound in US retail sales in August (0.3% from -0.4% the month before) provided further support to the Greenback toward the end of the week, hitting a new multi-decade high against Sterling.


Week ahead

Following stronger than expected US inflation data released this week, the Fed is expected to raise interest rates by 75bps this week, and some market participants think it may opt for a full percentage point increase, pushing the Dollar further up.


Calendar

Wednesday 7pm | Interest Rate Decision

Friday 2.45pm | PMI


Euro

The Euro outperformed the Pound but suffered losses against the Dollar.


Movements

EURUSD opened the week at 1.0121 and plunged heavily on Tuesday, losing more than 2% after US inflation data came out higher than expected. It then consolidated around parity during the rest of the week, showing little fluctuations and closing with a loss of 0.86% at 1.0034.


GBPEUR opened at 1.1503 and traded rangebound during the first half of the week before dropping, reaching a 7-month low at 1.1381. It closed with a weekly loss of 0.83% at 1.1408.


Movement rationale

EURUSD started last week touching a 3-week high on Monday (1.0199) as market participants digested the interest rate decision from the week before. Gains were short-lived tough, as on Tuesday the pair dropped 1.4% touching a low of 0.996 on the back of US CPI and a broad reduction in risk appetite. Further, the Euro remained weak as industrial output in the euro area suffered its biggest monthly fall in for more than 2 years in July. GBPEUR price action was less volatile during the first half of the week, before shedding 2% on Thursday and Friday, mainly due to GBP weakness. The Euro received some support by Von Der Leyen’s speech, with the Economic Commission President proposing a cap on the revenues of electricity and fossil fuel firms which benefitted the single currency. On Friday HICP data was released, showing Euro-zone prices increased 0.6% MoM (Vs 0.5% consensus), with limited impact on the currency.


Week ahead

ECB member speeches this week will be used as an insight into the interest rate decisions over the coming months.


Calendar

Tuesday 6pm | Lagarde speech

Friday 9am | PMI



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