• Audere Research

Foreign Exchange Analysis ~ 28 March 2022

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GB Pound

Sterling was mixed.


Movements

GBPUSD opened at 1.3158 and broadly maintained a neutral bias, briefly spiking up near 1.33 on Wednesday before rapidly reverting back below the 1.32 level. It closed largely unchanged at 1.3151.


GBPEUR opened at 1.1907 and rose during the first half of the week, trading as high as 1.2050 on early Wednesday. It then consolidated around the 1.20 level to close with a gain of 0.82% at 1.2005.


Movement rationale

Sterling began the week on the right foot, with market participants looking ahead to Wednesday (inflation data release and UK Budget) with optimism, driving GBP higher against majors and reaching a two-week high against the Euro. Sterling also benefitted from improved global market sentiment, with renewed hopes for a diplomatic breakthrough in the peace talks between Russia and Ukraine. However, despite CPI data hitting the highest level in 30 years (6.2%), gains made against major rival currencies were short-lived, with the currency quickly giving back part of the weekly gains. Some analysts attribute this to Rishi Sunak’s Spring Statement, as the measures announced may not have been considered enough to tackle inflation and the cost of living crisis. Finally, data published during the second half of the week was mixed. Whilst PMI data showed that the service sector is still benefitting from restrictions easing, other industries hinted at early signs of a slowdown. Also, UK Retail Sales figures fell unexpectedly in February, causing the UK currency to lose some ground against rivals.


Week ahead

With a light macroeconomic calendar ahead, investors will look at GDP data on Thursday for clues.


Calendar

Monday 2pm | BoE’s Governor Bailey speech

Thursday 7am | Gross Domestic Product (Q4)


US Dollar

Dollar benefitted from expectations that the US Federal Reserve could take a more aggressive stance in the attempts to curb inflation.


Movements

EURUSD opened at 1.1049 and traded with a negative bias, giving back most of the previous week’s gain, to close below 1.10 (1.0954) for a negative weekly performance of -0.86%.


GBPUSD opened at 1.3158 and broadly maintained a neutral bias, briefly spiking up near 1.33 on Wednesday before rapidly reverting back below the 1.32 level. It closed largely unchanged at 1.3151.


Movement rationale

The Dollar had a positive week, recovering most of the losses sustained the previous week. The US currency benefitted from both the Fed comments, rising T-Bond yields, and geopolitical developments. Firstly, during President Biden’s trip to Europe, announcements were made over the next set of Russian sanctions. This benefited the Dollar as any sanctions will disproportionately hit Europe harder due to their higher dependence on Russia. To combat this, Biden said he is working with Europe to reduce their reliance on Russian energy. Secondly, the Greenback was strengthened by Jerome Powell stating a 50bp rate hike is a possibility for the Fed, as concerns are growing around inflation expectations. However, USD lost its positive momentum against GBP and EUR at the end of the week, after Michigan consumer sentiment data hit a decade-long low.


Week ahead

With a busy calendar next week, the Dollar may benefit from GDP and nonfarm payrolls beating estimates.


Calendar

Wednesday 1:30pm | ADP Employment Change (Mar), Gross Domestic Product (Q4)

Friday 1.30pm | Nonfarm Payrolls (Mar), Unemployment rate (Mar), ISM Manufacturing PMI (Mar)


Euro

The continued war in Ukraine and dovish comments from the ECB meant the Euro weakened against the GBP and USD.


Movements

EURUSD opened at 1.1049 and traded with a negative bias, giving back most of the previous week’s gain, to close below 1.10 (1.0954) for a negative weekly performance of -0.86%.


GBPEUR opened at 1.1907 and rose during the first half of the week, trading as high as 1.2050 on early Wednesday. It then consolidated around the 1.20 level to close with a gain of 0.82% at 1.2005.


Movement rationale

As the war in Ukraine continues, the Eurozone has been hit by inflated energy costs, supply chain disruptions and a weakening currency. While the energy agreement with the US now means Germany has reduced Russian oil imports from 35% to 25% and gas from 55% to 40%, the trend is higher volatility in the FX markets. The negative implications of ongoing geopolitical tensions were then compounded by the consumer confidence data released on Wednesday. The result was worse than predictions, hitting the lowest level since May 2020. Also, the single currency remains under pressure on signs the ECB will not rush to raise interest rates. The outlook for risk currencies like the Euro continues to be bleak until progress with peace talks are made.


Week ahead

The busy macroeconomic calendar next week may be an additional source of volatility for the Euro


Calendar

Wednesday 9am | Consumer confidence (Mar)

Thursday 9am | Unemployment rate (Feb)

Friday 9am | Consumer Price Index (Mar)



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