• Audere Research

Foreign Exchange Analysis ~ 30 August 2022

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GB Pound

The Pound extended losses from the week before.


Movements

GBPUSD opened at 1.1790 and traded rangebound most of the week. On Friday the pair briefly touched 1.19 before resuming a long-term downtrend and hitting a new low since April 2020 at 1.1647. It partially recovered this morning to close at 1.1743 for a weekly loss of -0.4%.


GBPEUR opened at 1.1792 gaining on Monday and Tuesday to a high of 1.1896. Midweek the pair traded around 1.18, before losing some ground on Friday. It closed the week at 1.1708 for a weekly loss of -0.71%.


Movement rationale

As market participants began last week with a lower risk appetite, GBPUSD shed half a percentage point during Monday’s session. UK companies asked the government for a bailout and wage inflation data showed an uptick causing markets to favour the safe-haven USD. Despite this, GBPEUR gained on Monday and Tuesday as bets for a 50bps interest rate hike from the BoE supported the Pound. However, Sterling struggled to find momentum, with a sharp drop in manufacturing PMI and worries over rising energy prices, as well as the negative impact on Britain’s economy. This pushed the GBPUSD into a third week of consecutive losses; similarly, GBPEUR also gave up 1.18 going into the weekend.


Week ahead

Following the August bank holiday in the UK, the Pound may suffer volatility in the second half of the week due to the Conservative leadership contest decision.


Calendar

Thursday 9.30am | Manufacturing PMI


US Dollar

USD benefitted from a busy economic calendar, a speech from Jerome Powell, and recessionary headwinds abroad.


Movements

EURUSD opened at 0.9997 dropping to a fresh two-decade low of 0.9900 on Tuesday. Midweek the pair regained the 1.00 level but failed to close above parity. Despite a lack of momentum in either direction, the single currency closed the week slightly higher at 1.0029 for a weekly gain of 0.32%.


GBPUSD opened at 1.1790 and traded rangebound most of the week. On Friday the pair briefly touched 1.19 before resuming a long-term downtrend and hitting a new low since April 2020 at 1.1647. It partially recovered this morning to close at 1.1743 for a weekly loss of -0.4%.


Movement rationale

The Dollar performed well on Monday off the back of muted risk appetite. EURUSD dropped back below parity where it spent most of the week. On Tuesday the Composite PMI missed expectations: while the weak data caused GBP and EUR to briefly gain on the Dollar, recessionary factors in Europe and Britain meant the USD drop was only temporarily. Further, durable goods’ data on Wednesday was a large surprise to the downside. However, the USD gained on majors as markets looked ahead toward the Jackson Hole Symposium. The revised Q2 GDP (-0.6% Vs -0.8% consensus) on Thursday did little to move the Greenback. Going into the weekend Jerome Powell’s speech attested to the necessity of heightened interest rates. While a lower inflation print is welcomed, Powell argued it is too little too early to consider a reversal of monetary policy. The Dollar benefitted from the speech while $1.25 trillion was wiped off U.S. equities.


Week ahead

Markets will use this week’s busy economic calendar as insight into the health of the US economy.


Calendar

Tuesday 3pm | Consumer Confidence

Wednesday 1.15pm | Employment Change

Thursday 3pm | Manufacturing PMI

Friday 1.30pm | Nonfarm Payrolls


Euro

EURUSD dropped beneath July lows to touch the lowest level in 20 years.


Movements

EURUSD opened at 0.9997 dropping to a fresh two-decade low of 0.9900 on Tuesday. Midweek the pair regained the 1.00 level but failed to close above parity. Despite a lack of momentum in either direction, the single currency closed the week slightly higher at 1.0029 for a weekly gain of 0.32%.


GBPEUR opened at 1.1792 gaining on Monday and Tuesday to a high of 1.1896. Midweek the pair traded around 1.18, before losing some ground on Friday. It closed the week at 1.1708 for a weekly loss of -0.71%.


Movement rationale

Energy concerns dominated European headlines last week. As summer draws to a close and the crisis worsens, markets predict the severity of energy problems going into the winter. News that Russia will halt Nord Stream 1 for 3 days of unscheduled maintenance caused EURUSD to drop to the lowest level since 2002 (0.9900). Gas futures touched €277 per megawatt hour in the first half of last week. On Tuesday, composite PMI came broadly in line with the already bleak consensus and consumer confidence surprised to the upside (-24.9). However, for EURUSD, Euro-zone recessionary headwinds meant the single currency couldn’t capitalise on the data. In the latter half of the week, the ECB released minutes which caused GBPEUR to move lower. The notes suggested the number one priority for the central bank is to avoid sustained inflation. While this may continue to favour the Euro against the Pound, it is unlikely EURUSD will be able to reverse the current downtrend in the short term.


Week ahead

All eyes look toward inflation data on Wednesday. A hot print could benefit the Euro.


Calendar

Tuesday 10am | Consumer Confidence

Wednesday 10am | HICP (Aug)

Thursday 10am | Unemployment



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