• Audere Research

Foreign Exchange Analysis ~ 3 May 2022

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GB Pound

The Pound suffered multi-year lows against the Dollar while GBP/EUR was mixed throughout the week


Movements

GBPUSD opened at 1.2745 and once again traded lower during the first part of the week, reaching a new multi-year low on Thursday (1.2420), a level not seen since July 2020. It then slightly recovered to close at 1.2551 for a weekly loss of 1.52%.


GBPEUR opened at 1.1879 and moved rangebound all week, trading between 1.1820 and 1.1950. It closed slightly higher at 1.1929 (+0.42%).


Movement rationale

As the UK economic calendar was light last week, the movements of the Pound were mainly related to developments away from the UK. Due to a further escalation of the Ukraine-Russia conflict, an increased risk premium was placed on non-safe haven currencies. Because of this, market participants favoured the Dollar which rallied against the Pound and reached the lowest since July 2020 midweek. GBPEUR had more of a mixed trend throughout the week due to developments in Russia’s gas exportation policy. Unlike the week prior, an economic calendar including PMI and Interest rate decisions will likely create more volatility for GBP next week. With a rate hike widely expected, investors will pay attention to Governor Andrew Bailey’s message about the state of the economy guidance for future rate hikes.


Week ahead

GBPEUR should favour a 25bp rate hike from the BoE (although the central bank may decide to slow its balance sheet reduction) while GBPUSD may continue to suffer if the Fed chose to pursue a 50bp hike.


Calendar

Tuesday 8:30am | S&P Global/CIPS Manufacturing PMI

Thursday 11am | Interest Rate Decision


US Dollar

The dollar continued to rally against majors to reach a 5-year high.


Movements

EURUSD opened at 1.0727 and continued its recent freefall during the first part of the week to reach a 5-year low on Thursday at 1.0472. It then consolidated around 1.05 level to close at 1.0521 for a heavy loss of 1.92%.


GBPUSD opened at 1.2745 and once again traded lower during the first part of the week, reaching a new multi-year low on Thursday (1.2420), a level not seen since July 2020. It then slightly recovered to close at 1.2551 for a weekly loss of 1.52%.


Movement rationale

Since the start of the war in Ukraine, USD has benefitted from a “flight to a quality” environment. As this week saw a worsening of the geopolitical landscape, USD continued to reap the rewards of being geographically and economically dislocated from Russia. Due to European nations’ dependence on Russian commodities, markets reacted quickly to news of a possible cut-off of Russian gas. In response, Biden announced $300m in military financing and a $165m sale of ammunition. Alongside fears over Ukraine, the continued divergence of monetary policy contributed to a further boost to the Greenback, ahead of the interest rate decision next week. The USD rally eased toward the end of the week as the market was taken by surprise by a disappointing US GDP print, with the report showing a contraction for the first time since mid-2020 (1.4% annualised). However, despite a slowdown in economic output, rising prices and continued conflict in Ukraine, U.S. consumer sentiment data released on Friday beat expectations and provided some support to the currency.


Week ahead

With interest rate decision, PMI data and job data releases, volatility should remain elevated.


Calendar

Monday 2:00m | ISM Manufacturing Prices Paid (Apr)

Wednesday 12:15pm | ADP Employment Change 2:00pm | ISM Services PMI (Apr) 6pm | Fed Interest Rate Decision

Thursday 12:30pm | Initial Jobless Claims (Apr 29)

Friday 12:30pm | Nonfrarm Payrolls (Apr)


Euro

The euro suffered losses against the Pound and the Dollar.


Movements

EURUSD opened at 1.0727 and continued its recent freefall during the first part of the week to reach a 5-year low on Thursday at 1.0472. It then consolidated around 1.05 level to close at 1.0521 for a heavy loss of 1.92%.


GBPEUR opened at 1.1879 and moved rangebound all week, trading between 1.1820 and 1.1950. It closed slightly higher at 1.1929 (+0.42%).


Movement rationale

The Euro area started the week with positive news from the French election. Macron, who won the election with 58.8% of the vote, is considered more pro-business than Le Pen. While this should have decreased the risk premium for the Euro, events throughout the week meant the shared currency underperformed against majors. Since Putin’s demands for Russian gas to be paid for in roubles, the Euro area has feared the possibility of a Russian cut-off. With Poland and Bulgaria now without Russian gas, market participants fear the same could be applied to Germany. With European gas prices spiking 17% after the news, EURUSD hit the lowest level since April 2017. In terms of economic data, GDP data released on Friday showed a euro-zone growth of 0.2% in the first three months of the year, with France, Italy, and Spain all losing pace. Also, inflation keeps rising for the sixth month in a row, reaching 7.5% in April.


Week ahead

Due to next week’s Fed and BoE interest rate decisions, the single currency may continue to suffer from its monetary policy which hasn’t begun interest rate hikes.


Calendar

Monday 9:00am | Consumer Confidence (Apr)

Tuesday 00:00am | Eurogroup Meeting 09:00am | Unemployment Rate (Mar)

Wednesday 08:00am | S&P Global Composite PMI (Apr) 9:00am | Retail Sales (YoY)(Mar)


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