• Audere Research

Foreign Exchange Analysis ~ 25 July 2022

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GB Pound

The Pound gained on the Dollar whilst making a small loss against the Euro.


Movements

GBPUSD started the week at 1.1981 increasing on Tuesday to reach a high of 1.2047. After trading rangebound for the remainder of the week the pair closed at 1.2008 for a weekly gain of 0.23%.


GBPEUR opened at 1.1788 before a volatile week for the pair. The pair struggled to find momentum, each day reversing the previous day’s movement. GBPEUR closed at 1.1766 for a weekly loss of -0,19%.


Movement rationale

Sterling performed well on Monday against majors amid an increasingly tight Conservative leadership race. In the latest round, Sunak beat Mordaunt with 115 votes to 82. Despite 40-year high inflation, macroeconomic data last week was broadly in line with expectations. On Tuesday unemployment came in exactly in line with consensus (3.8%) and CPI on Wednesday touched 9.4% (vs 9.3% consensus). In response to the worsening cost of living BoE governor Bailey attested a 50bp rate hike was “on the table”. Ordinarily, this would offer support to the Pound but due to similar rhetoric from the ECB and a gloomy outlook for the UK economy, GBP gains were limited. The Pound closed the week with retail sales weaker than expected (-5.8% vs -5.3% consensus) and PMI in line with expectations. The macroeconomic calendar for next week is empty for the UK, meaning the Pound will likely be susceptible to any changes in risk appetite following the interest rate announcement in the US.


Week ahead

The UK will have a lack of data next week to prepare for the interest rate announcement the week after next.


Calendar


US Dollar

The dollar faced pressure from improved market risk appetite, retreating from the recent two-decade peak.


Movements

EURUSD opened at 1.0163 with a strong start to the week. Following highs of 1.0270 on Tuesday, the pair dropped back beneath 1.02 midweek. The Euro closed the week at 1.0205 for a weekly gain of 0.42%.


GBPUSD started the week at 1.1981 increasing on Tuesday to reach a high of 1.2047. After trading rangebound for the remainder of the week the pair closed at 1.2008 for a weekly gain of 0.23%.


Movement rationale

As the war in Ukraine prolongs, fears over a global energy crisis intensify. President Biden started last week with a trip to Saudi Arabia in the hope of reaching an agreement to increase oil supply. Unfortunately, Biden went back to the US with little of note as Saudi refused to work unilaterally without OPEC+. Both GBP and EUR gained on the Dollar on Tuesday as market risk appetite improved. Similarly, on Thursday the Greenback lost to majors on the back of weak initial jobless claims and manufacturing survey data. Finally, the USD lost to GBP and EUR on Friday on the back of preliminary PMI data missing expectations at 47.5. With a busy economic calendar next week all eyes will look toward the Fed interest rate announcement. Currently, the market is pricing in a 75bp rate hike (with 100bp having a 30% probability). Having said this, numerous Central Banks have recently shocked markets with interest rate increases, so nothing can be ruled out.


Week ahead

With GDP and Interest rate announcements taking place next week, there is a high potential for USD volatility.


Calendar

Tuesday 1.30pm | consumer confidence (Jul)

Wednesday 1.30pm | durable goods 7pm |Interest Rate Decision

Thursday 1.30pm | GDP (Q2) | Initial Jobless Claims

Friday 2.45 | PMI (Jul)


Euro

Despite a possible energy crisis in Germany and a political crisis in Italy, Euro rebounded as the ECB hiked rates for the first time in a decade.


Movements

EURUSD opened at 1.0163 with a strong start to the week. Following highs of 1.0270 on Tuesday, the pair dropped back beneath 1.02 midweek. The Euro closed the week at 1.0205 for a weekly gain of 0.42%.


GBPEUR opened at 1.1788 before a volatile week for the pair. The pair struggled to find momentum, each day reversing the previous day’s movement. GBPEUR closed at 1.1766 for a weekly loss of -0,19%.


Movement rationale

On Monday, the Euro faced pressure from continued political uncertainty in Italy. Despite this, EURUSD gained on Monday’s session. Uncertainty intensified with news that Russia may not reopen Nordstream 1 after the 10 days of planned maintenance, resulting in a spike in European natural gas prices. However, downside risk was offset by headlines suggesting the ECB was discussing a 50bp rate hike in response to inflation hitting 8.6%, which boosted the Euro on Tuesday. However, the upward move was short-lived as consumer confidence data surprised to the downside, and a lower investor risk appetite put downward pressure on the Euro on Wednesday. As Nordstream reopened midweek (albeit at lower capacity) a European energy crisis was narrowly avoided, which supported the Euro. Finally, the Euro was further supported by the first interest rate hike in a decade on Thursday. The 50bp rate hike caused a brief spike for the Euro before news of Draghi’s resignation weighed on the single currency going into the weekend.


Week ahead

All eyes look toward the data at the end of next week. With growth concerns and rising prices being the two primary factors affecting the Euro, any surprises will likely shift the currency.


Calendar

Thursday 10am | Consumer Confidence

Friday 10am | GDP (Q2) | HICP (Jul)


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