• Audere Research

Foreign Exchange Analysis ~ 30 May 2022

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GB Pound

Poor PMI data put a break on the Pound at the start of the week. However, the currency managed to slowly recoup its losses in the latter half of the week.


Movements

GBPUSD opened at 1.2566 before dropping to 1.2471 on Tuesday. These losses were then reversed steadily for the rest of the week briefly touching a high of 1.2667 on Friday (a 1-month high) before closing the week at 1.2627 for a weekly gain of 0.49%.


GBPEUR opened at 1.1855 before losing 1.5% in the first two trading days of the week, hitting a bottom of 1.1643. Part of these losses were then retraced on Wednesday and Thursday before flattening for the rest of the week. The pound struggled to push past resistance at 1.18 and the pair closed the week at 1.1750 for a weekly loss of -0.89%.


Movement rationale

The Pound began the week at a 2-week high above 1.25 after positive retail sales data at the end of the week. However, this momentum was short-lived following Tuesday’s products and services PMI data. Tuesday marked the worst drop in UK PMI on record, excluding lockdown PMI data. Both manufacturing and services dropped with the services sector falling 7.2 points. As this data reminded market participants of the bleak outlook for economic growth in the UK, GBPUSD and GBPEUR fell. During the second half of the week, Sterling received some support from the UK's chancellor’s announcement of a £15 billion support package for UK households to mitigate the rising cost of living in the UK. This enabled the UK currency to stage a comeback against the Dollar and slowly reverse early losses. For GBPEUR, a reversal of Tuesday’s losses was harder to gain traction following the positivity surrounding a hawkish ECB.


Week ahead

A light economic calendar means the pound may be exposed to US and Euro data volatility next week.


Calendar


US Dollar

The Dollar saw its second week of consecutive losses against majors.


Movements

EURUSD opened at 1.0598, gaining on Monday and Tuesday sessions. After a temporary correction of 1% on Wednesday morning, the uptrend then resumed for the rest of the week closing at 1.0745 (the highest level in a month) appreciating 1.39%.


GBPUSD opened at 1.2566 before dropping to 1.2471 on Tuesday. These losses were then reversed steadily for the rest of the week briefly touching a high of 1.2667 on Friday (a 1-month high) before closing the week at 1.2627 for a weekly gain of 0.49%.


Movement rationale

Easing of Shanghai lockdowns, a hawkish ECB, and slowing growth data all lead to a decrease in the Dollar the week prior to last. As last week was another data-heavy week for the US, the Greenback was exposed to further volatility. First, on Tuesday, PMI data surprised to the downside (although not as much as in the UK). Then on Wednesday, the FOMC minutes were released from the May 4th interest rate decision. There was little to surprise to market participants from the minutes which stated the Fed is still willing to increase rates to a restrictive level to slow rising prices. Despite this, markets digested the information by favouring risk currencies over the Dollar. GBPUSD and EURUSD both went into the weekend stronger than the week previous.


Week ahead

Next week’s confidence, PMI and payroll data will be used as further insight into slowing economic growth in the US.


Calendar

Tuesday 2pm | Consumer Confidence (May)

Wednesday 2pm | Manufacturing PMI (May)

Friday 12:30pm | Nonfarm Payrolls (May)


Euro

The Euro continues to be supported by speculation that the ECB could act more aggressively in increasing interest rates.


Movements

EURUSD opened at 1.0598, gaining on Monday and Tuesday sessions. After a temporary correction of 1% on Wednesday morning, the uptrend then resumed for the rest of the week closing at 1.0745 (the highest level in a month) appreciating 1.39%.


GBPEUR opened at 1.1855 before losing 1.5% in the first two trading days of the week, hitting a bottom of 1.1643. Part of these losses was then retraced on Wednesday and Thursday before flattening for the rest of the week. The pound struggled to push past resistance at 1.18 and the pair closed the week at 1.1750 for a weekly loss of -0.89%.


Movement rationale

Following a low of 1.0350 in mid-May the single currency has now covered around 2.7% of its losses in its second week of gains. Firstly, as lockdowns in China ease, market participants increase their risk appetite. However, most of the Euro’s support comes following a hawkish interpretation of the ECB. Markets now expect interest rates to be positive for the euro area in Q3 with a likely 25bp hike in July and 50bp in September. Nevertheless, ECB’s Panetta and Rehn alluded to the necessity of a gradual increase in interest rates. PMI only slightly missed expectations (54.9 compared to 55.3 consensus), meaning the economy is in a positive position going into a period of tighter monetary policy benefitting the Euro. While the Euro managed to capitalize on dollar weakness there is a sense that this may not continue indefinitely. Last week Europe announced plans for a EUR 210-billion project to get Europe away from being dependent on Russian energy. With geopolitical tensions set to continue, the prospect of Dollar weakness will likely benefit the Pound more than the Euro over the coming weeks.



Week ahead

As the hawkish ECB has already been priced in by markets, the Euro gains against the Dollar may run out of steam next week.


Calendar

Monday 9am | Consumer Confidence (May)

Tuesday 9am | HICP (YoY) (May)

Wednesday 9am | Unemployment Rate (Apr)


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