• Audere Research

Foreign Exchange Analysis ~ 25 April 2022

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GB Pound

GBP saw a large loss in Friday’s session following disappointing economic data releases and a reassessment of interest rate expectations.


Movements

GBPUSD opened at 1.2993 and remained quiet all week until Friday, when it started to fall, losing 1.5% on the day. The pair continued to depreciate this morning, closing the week with heavy losses (-1.91%) at 1.2745, the lowest level since September 2020.


GBPEUR opened at 1.2062 and traded around the 1.20 level most of the week. It then sold off on Friday, falling 1% and eventually closing the week at 1.1879, enduring a substantial weekly negative performance of 1.51%.


Movement rationale

As the UK economic calendar for the first half of the week was relatively light, the currency volatility was somewhat limited. However, dovish comments from BoE Governor Andrew Bailey last Thursday and disappointing data released on Friday provoked a sharp sell-off in Sterling, which lost more than 1% against both Dollar and Euro. Investors reacted to UK consumer confidence data, which surprised to the downside plunging to the lowest since 2008, poor retail sales figures (dropped by 1.4%), and weak PMI data, raising concerns about a possible slowdown in the economic activity. The data represents a downshift in rate hike expectations and resulted in a sharp drop in Sterling, with GBP/USD hitting the lowest level since September 2020, and GBP/EUR moving decisively lower and well below the 1.20.


Week ahead

A potential shift in BoE rate expectations and a deterioration in risk sentiment could continue to pose downside pressure to the Pound in the weeks ahead.


Calendar


US Dollar

The Dollar maintains its momentum amid a new wave of market risk aversion and hawkish comments from the Fed.


Movements

EURUSD opened at 1.0771 and appreciated during the first half of the week, reaching 1.0935 on Thursday. It then resumed the downtrend, erasing all gains and touching a 2-year low at 1.0707. It closed at 1.0727, with a weekly loss of 0.4%.


GBPUSD opened at 1.2993 and remained quiet all week until Friday, when it started to fall, losing 1.5% on the day. The pair continued to depreciate this morning, closing the week with heavy losses (-1.91%) at 1.2745, the lowest level since September 2020.


Movement rationale

Hawkish comments from multiple Fed members helped support the Dollar at the beginning of last week. Bullard said that a 75bp rate hike is a possibility, stating that rates should be near 3.5% by the end of 2022. Towards the end of the week, Fed chair Jerome Powell argued ‘there’s something in the idea of frond-end loading’ in relation to a possible 50bp rate hike in May which helped the USD gain on EUR and GBP. Alongside interest rate expectations which led to rising US Treasury yields and boosted the Greenback, uncertainties over the global growth outlook set a negative tone in global markets. This pushed investors to flight to quality, lifting the Dollar near two-year highs against Euro and Sterling toward the end of the week. Looking ahead, the US will unveil the balance sheet runoff programme at the FOMC meeting in May which could further the gains USD has made against majors in 2022. Also, in an aim to help Ukrainian efforts, Biden announced Ukraine would receive more weapons and $800m aid.


Week ahead

Market participants look ahead to GDP data amid fears over global growth slowdown.


Calendar

Tuesday 1:30pm | Durable goods orders (Mar), Consumer Confidence (Apr)

Thursday 1:30pm | Gross Domestic Product Price Index (Q1)

Friday 3pm | Michigan Consumer Sentiment Index (Apr)


Euro

Despite French President Emmanuel Macron's comfortable election victory over far-right rival Marine Le Pen, the Euro reached a new multi-year low against the Dollar but outperformed the Pound.


Movements

EURUSD opened at 1.0771 and appreciated during the first half of the week, reaching 1.0935 on Thursday. It then resumed the downtrend, erasing all gains and touching a 2-year low at 1.0707. It closed at 1.0727, with a weekly loss of 0.4%.


GBPEUR opened at 1.2062 and traded around the 1.20 level most of the week. It then sold off on Friday, falling 1% and eventually closing the week at 1.1879, enduring a substantial negative performance of 1.51%.


Movement rationale

The Euro remained resilient at the start of the week despite President Zelensky announcing Russia had started phase two of the war, “the battle of Donbas”, on Tuesday. The currency gained on Thursday with ECB statements sounding ever more hawkish, hinting at rate hikes as early as July. The single currency also made small gains after news that French President Macron was comfortably winning the election over far-right rival Le Pen, reassuring the markets that the current European dynamic will last. However, the currency didn’t benefit from the stable political outlook as a deterioration of risk sentiment pushed the Euro against the Dollar, reaching a two-year low this Monday morning. Some investors are also concerned that the French election could lead to a quick decision in favour of a Russian oil embargo, further exacerbating inflationary pressures in the Eurozone and driving an economic slowdown.


Week ahead

Further volatility this week may arise from the Euro-zone GDP announcement.


Calendar

Thursday 10am | Consumer Confidence (Apr)

Friday 10am | Gross Domestic Product (Q1), GDP (Q1) | HICP (Apr)


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