• Audere Research

Foreign Exchange Analysis ~ 27 June 2022

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GB Pound

Despite some volatility, the Pound ended the week largely unchanged against USD and EUR


Movements

GBPUSD opened at 1.2242 making small gains on Monday and Tuesday. Although a portion of these gains were reversed midweek the pair closed at 1.2306 for a weekly gain of 0.52%.


GBPEUR opened at 1.1632, trading rangebound on Monday and Tuesday. It then trended lower to touch 1.1570 on Thursday morning before reversing all losses and closing unchanged at 1.1634.


Movement rationale

Sterling traded rangebound on Monday and Tuesday’s session, barely breaking either side of 1.22 against the dollar and 1.16 against the Euro. On Wednesday, the 40-year high inflation print did little to swing risk sentiment: an annualised figure of 9.1% was in line with consensus meaning any GBP reaction was short-lived. Similarly, on Thursday, UK PMI at 53.4 failed to surprise markets meaning GBPUSD struggled to gain momentum in either direction. For GBPEUR a stronger trend emerged, driven by Eurozone PMI surprises. Positive Retail Sales data meant the Pound managed to finish the weak slightly stronger against most major currencies. Although a 5.7% contraction was reported, this was far milder than the -6.9% consensus, meaning markets reacted positively. Investors next week will likely continue the reassessment of growth Vs inflation for the UK. Seemingly, the consumer price dynamic is the main priority for now as interest rate hikes continue to rise, with 50bp now priced in at the August meeting.


Week ahead

An important week for macroeconomic data will likely mean further volatility for the Pound. If UK GDP surprises to the downside, markets will likely reassess the monetary policy outlook for the BoE.


Calendar

Wednesday 12:10pm | BoE Governor Bailey Speech

Thursday 7am | GDP (Q1)

Friday 9:30am| Manufacturing PMI


US Dollar

USD lost some ground as investors re-assess Fed rate path.


Movements

EURUSD opened at 1.0522 and largely moved in a tight range during the first part of the week (1.0490-1.06). The pair then traded with a positive bias toward the end of the week to close at 1.0577 for a weekly change of 0.52%.


GBPUSD opened at 1.2242 making small gains on Monday and Tuesday. Although a portion of these gains were reversed midweek the pair closed at 1.2306 for a weekly gain of 0.52%.


Movement rationale

America began the week with a public holiday on Monday, meaning markets were closed. There was a lack of economic data in the first half of last week, meaning movements in the Dollar were limited. On Wednesday Fed Chair Powell testified to Congress stating, “our tools affect inflation, not necessarily wage inflation”. This was digested by markets as a hawkish outlook that justifies front-loaded interest hikes. This buoyed the Dollar which reached 24-year highs against the Yen. On Thursday the US currency remained supported despite poor PMI data, as risk appetite soured. However, the Greenback slipped on Friday to post its first weekly decline this month, as falling commodity prices during the week and threats of a global recession are raising investors’ bets that the Fed could slow its rate-tightening pace.


Week ahead

A busy calendar for data next week means the Dollar may gain on majors if US GDP outperforms its counterparts.


Calendar

Monday 1:30pm | Durable goods (May)

Tuesday 3pm | Consumer Confidence (Jun)

Wednesday 1:30pm | GDP (Q1)

Thursday 1:30pm | Initial Jobless Claims (Jun 24)

Friday 2:45pm | Manufacturing PMI (Jun)


Euro

The European currency was resilient despite bleak economic data.


Movements

EURUSD opened at 1.0522 and largely moved in a tight range during the first part of the week (1.0490-1.06). The pair then traded with a positive bias toward the end of the week to close at 1.0577 for a weekly change of 0.52%.


GBPEUR opened at 1.1632, trading rangebound on Monday and Tuesday. It then trended lower to touch 1.1570 on Thursday morning before reversing all losses and closing unchanged at 1.1634.


Movement rationale

Last week began with French President Macron losing his outright majority winning 245 of the 289 seats required. Currency markets seemed to tolerate this political risk in France as the Euro made small gains on the Dollar during the first half of the week, with investors largely focused on the ECB tools to tackle the risk of Eurozone fragmentation. The Euro was additionally supported by Madame Lagarde’s speech which maintained the notion of an interest rate hike in July. On Wednesday the Euro strengthened against most major peers despite consumer confidence surprising to the downside. However, these gains were reversed on Thursday in light of Manufacturing and Services PMI deteriorating more than market predictions. The Euro went into the weekend gaining 0.28% on USD in Friday’s session.


Week ahead

The Euro will likely be susceptible to volatility arising from GDP data in the US and UK. Market participants will use inflation data (HICP) as an insight into the likelihood of further EU interest rate hikes.


Calendar

Wednesday 10am | Consumer Confidence (Jun)

Thursday 10am | Unemployment Rate (May)

Friday 10am | HICP (Jun)


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