• Audere Research

Foreign Exchange Analysis ~ 24 October 2022

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GB Pound

The Pound remained highly volatile in a week characterised by political chaos which ended with the PM resignation.


Movements

GBPUSD started the week at 1.1257 gaining 1.6% on Monday. Following the high of 1.144, Cable progressively moved lower to touch a low of 1.1060 on Friday. The pair then recovered sharply to finally close the week 0.79% higher at 1.1346.


GBPEUR opened at 1.1552 and initially headed higher, touching a 6-week high on Monday. The pair then traded with a negative bias for the remainder of the week, reaching 1.1390 on Friday. It finally managed to erase most of the losses to close at 1.1514 (-0.33%).


Movement rationale

The Pound appreciated against most majors on Monday on the back of improved sentiment from the sacking of Kwarteng and the appointment of Jeremy Hunt as chancellor. The markets welcomed the repealing of almost all aspects of Kwarteng’s mini-budget. For GBPUSD, gains were reversed midweek, shedding 0.3% on Tuesday and 0.9% Wednesday, as a hot CPI print exacerbates the spending squeeze faced by UK consumers. UK inflation rose back to the 40-year high at 10.1% y/y, largely driven by food which rose 14.8% in September (y/y). Consequently, interest rate forecasts now project a 100bp hike in November, 75bp hike in December and a terminal rate around 5% for most of 2023. However, due to the Political uncertainty manifesting at Westminster, the Pound failed to move decisively on Thursday trading rangebound against Dollar and Euro. Liz Truss resigning caused a GBP rally on Friday, despite some poor UK retail sales data, which resulted in the pair closing the week higher against the Dollar.


Week ahead

A quiet economic calendar ahead of the BoE’s next interest rate announcement could mean the Pound is likely to be driven by the outcome of this week’s leadership elections.


Calendar

Monday 9.30am | PMI


US Dollar

Dollar lost some ground last week as the Fed seems to be prepared to slow rate hikes.


Movements

EURUSD opened the week at 0.9744 gaining 1.2% on Monday. After a quiet Tuesday, the pair shed 0.8% on Wednesday following CPI data. A volatile Friday session saw the pair briefly touching 0.9705 before jumping 1.5% higher to close with a weekly gain of 1.1% at 0.9852.


GBPUSD started the week at 1.1257 gaining 1.6% on Monday. Following the high of 1.144, Cable progressively moved lower to touch a low of 1.1060 on Friday. The pair then recovered sharply to finally close the week 0.79% higher at 1.1346.


Movement rationale

Demand for risk assets increased on Monday causing a depreciation of the Dollar against GBP and EUR. On Tuesday, a lack of market-moving data caused the Greenback to trade rangebound. EURUSD traded flat as markets looked ahead to European inflation data on Wednesday. The bullish Dollar resumed its upward trend on Wednesday, helped by high US rates, pushing the Sterling back toward the 1.12 level and EURUSD to 0.975. Price action was muted again on Thursday with stronger-than-expected jobs data failing to move the Dollar. Initial Jobless Claims increased by 214k down from 226k the month before, further highlighting the strength of US employment. Improved risk sentiment and headlines on Friday that some policymakers have begun signalling a greater unease with large interest rate rises caused the Greenback to lose 0.7% against Euro and 0.6% on the Pound.


Week ahead

All eyes look toward the preliminary growth data on Wednesday. Expect volatility if GDP surprises to the downside.


Calendar

Monday 2.45pm | PMI

Tuesday 3pm | Consumer Confidence

Thursday 1.30pm | Durable Goods | GDP Q3 (preliminary)


Euro

The Euro outperformed a basket of majors last week despite inflation data failing to surprise markets.


Movements

EURUSD opened the week at 0.9744 gaining 1.2% on Monday. After a quiet Tuesday, the pair shed 0.8% on Wednesday following CPI data. A volatile Friday session saw the pair briefly touching 0.9705 before jumping 1.5% higher to close with a weekly gain of 1.1% at 0.9852.


GBPEUR opened at 1.1552 and initially headed higher, touching a 6-week high on Monday. The pair then traded with a negative bias for the remainder of the week, reaching 1.1390 on Friday. It finally managed to erase most of the losses to close at 1.1514 (-0.33%).


Movement rationale

EURUSD gained 1.2% on Monday’s session touching a high of 0.985 despite an escalation of the war in Ukraine. However, a recent lull in energy prices caused European gas to touch a 3-month low. The single currency gained half a percent on Sterling in Tuesday’s session as markets looked ahead toward European inflation data on Wednesday. Inflation came exactly in line with expectations and unchanged from the month before (1.2%). In the latter half of the week, EU members gathered in Brussels for a summit where Germany and France narrowly avoided a rift when proposing a united gas price cap. On Thursday both EURUSD and GBPUSD traded rangebound due to a lack of macroeconomic data. The single currency benefitted from improved risk appetite on Friday gaining on most majors and closing the week higher.


Week ahead

As the ECB have abandoned forward guidance, the single currency could face volatility on Thursday if the interest rate announcement surprises market participants. While a 75bps rate hike is largely priced in, some hawkish comments could boost the Euro higher.


Calendar

Monday 9am | PMI

Tuesday 9am | ECB bank lending survey, IFO – Business Climate (Oct)

Thursday 1.15pm | ECB Monetary Policy Decision

Friday 9am | German Gross Domestic Product (Q3), Consumer Confidence (Oct)




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