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Foreign Exchange Analysis ~ 28 November 2022


GB Pound

What happened last week?

Sterling traded as high as 1.2153 as, finally, it fell out of the glare of the political limelight. This was a 16-week high although mainly a function of dollar weakness more than GBP outperformance.


What to watch for in the next month?

Given sterling has risen so precipitously we have to be mindful that a reversion is entirely possible.


Recent speeches from the Bank of England have not changed their hawkish tone and this comes despite the fiscal consolidation and cost-of-living crisis. While this may point to higher rates, higher rates have not so far led to a stronger pound.

A move above 1.22/23 in GBPUSD or below 0.86 in EURGBP would open up further range for sterling gains.

What about the coming 3 to 6 months?

A cold winter is forecast and without wider support for households and businesses on energy, we are wary of further pressures on aggregate demand.


Calendar

Tuesday 12:35 GMT | BOE Member Mann Speech

Wednesday 08:30 GMT | BOE Member Pill Speech

Thursday 09.30 GMT | Manufacturing PMI


US Dollar

What happened last week?

It’s been another week of dollar losses against the majority of the majors although trading was shortened by the Thanksgiving holidays.

What to watch for in the next month?

EURUSD’s recovery above parity has taken some in markets by surprise. Hopes that the Chinese economy is set to reopen from its zero-Covid policy have supported the single currency as have further record rises in CPI, although most of the move in the pair has been a function of dollar weakness.


Current levels and towards 1.05 in EURUSD should provide some support for the USD and a rebound towards 1.02 cannot be ruled out in the coming week, especially if the feedback from large US retailers is that the US consumer has been happy to spend money over the Thanksgiving weekend.


Given inflation characteristics in the States, this could be the impetus that dollar bulls need to further lean into Federal Reserve communications that rate hikes are not going to finish anytime soon.

What about the coming 3 to 6 months?

A cold winter is forecast and without wider support for households and businesses on energy, we are wary of further pressures on aggregate demand.


Calendar

Tuesday 15:00 GMT | Consumer Confidence

Wednesday 13.30 GMT | Q3 GDP

Friday 09.30 GMT | Non-Farm Payrolls


Euro

What happened last week?

EURUSD traded higher on a week with EURGBP moving in the opposite direction albeit rangebound between 0.8540 and 0.87.

What to watch for in the next month?

Much like in the UK, the coming together of a

recession and a central bank that is tightening monetary conditions is set to make circumstances a lot tougher for the single currency.

Of the three central banks within this report, we

think that the ECB is most likely to blink first and pivot away from hikes, further decreasing the marginal benefit of holding the euro.

A broad cessation of hostilities in Ukraine poses the greatest upside potential for EURUSD and other risk assets although such a change remains unforecastable.

What about the coming 3 to 6 months?

An ECB pivot could come as soon as February should the ECB show in December that inflation is set to match their target during their 3-year forecast period.


Calendar

Tuesday 13.00 GMT | German Inflation

Wednesday 10.00 GMT | Eurozone Inflation

Thursday 10.00 GMT | Eurozone Unemployment



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