• Audere Research

Foreign Exchange Analysis ~ 6 June 2022

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GB Pound

The Pound was weak amid concerns over the UK economy.


Movements

GBPUSD opened at 1.2627 falling on Wednesday to a low of 1.2458. Although the pound reversed briefly above 1.25, it dropped again going into the weekend to close at 1.2526 for a weekly loss of -0.8%.


GBPEUR opened at 1.1750 and after a quiet start it began to fall during the second half of the week The pair closed the week at 1.0674 for a change of -0.64%.


Movement rationale

Following the month of straight GBP losses, the pound entered last week showing some signs of optimism, supported by the fiscal package Rishi Sunak announced the week prior. However, fresh industry data released on Wednesday continued to report a slowdown in UK manufacturing, now at the lowest level in 16 months, adding more concerns about a deteriorating UK growth outlook. This prompts a GBPUSD selloff, exacerbated by solid manufacturing data across the Atlantic. Although GBPUSD managed to retrace on Thursday following US employment data, gains were short-lived as the cable reversed again going into the weekend below the important 1.25. The shift to risk-off also seemed to benefit the Euro more than the Pound last week. GBPEUR consistently decreased throughout the week.


Week ahead

Whilst so far Sterling is trading firmer ahead of the no-confidence vote this Monday, confirming political uncertainty is no headwind to GBP, expect volatility in case of a major political development.


Calendar

Monday 7pm | No confidence vote in UK PM Johnson


US Dollar

The Dollar gained on majors during Wednesday’s session. EURUSD reversed this going into the weekend, however, GBP struggled to recover.


Movements

EURUSD opened at 1.0745 suffering losses on Tuesday and Wednesday. After reaching a low of 1.0626 the pair recovered on Thursday to a high of 1.0751 before closing the week at 1.0729 for a limited weekly change of 0.15%


GBPUSD opened at 1.2627 falling on Wednesday to a low of 1.2458. Although the pound reversed briefly above 1.25, it dropped again going into the weekend to close at 1.2526 for a weekly loss of -0.8%.


Movement rationale

The US started the week with a public holiday on Monday for Memorial Day. Although the Dollar gained on the Pound and Euro on Monday and Tuesday, both pairs traded around a narrow range. However, on Wednesday the US posted an ISM manufacturing PMI of 56.1 in May. Not only did this beat April’s score but the consensus was for a downtick from last month. Market participants used this information as a sign that the Fed still has room to move interest rates back to a normal setting by front-loading the curve which benefitted the Greenback, with gains of around 1% against its peers. This however was short-lived as on Thursday the Euro staged a comeback recouping most of its weekly losses. Solid nonfarm payroll numbers, with employment data showing 390,000 new jobs added to the economy last month, provided some support again to the US currency, which moved up 0.4% against major rivals on Friday to close the week on a positive note


Week ahead

A busy economic calendar will likely lead to further volatility. Expect shifts in the risk appetite of market participants if data shows a weakening US economy.


Calendar

Tuesday 1:30pm | Goods and Services Trade Balance (Apr)

Thursday 1:30pm | Initial Jobless Claims (Jun 3)

Friday 1:30pm | CPI (May 2pm | Consumer Sentiment (Jun) 7pm | Monthly Budget Statement (May)


Euro

The Euro had a strong week against GBP. EURUSD was more of a mixed bag.


Movements

EURUSD opened at 1.0745 suffering losses on Tuesday and Wednesday. After reaching a low of 1.0626 the pair recovered on Thursday to a high of 1.0751 before closing the week at 1.0729 for a limited weekly change of 0.15%


GBPEUR opened at 1.1750 and after a quiet start it began to fall during the second half of the week. The pair closed the week at 1.0674 for a change of -0.64%.


Movement rationale

As has been the case for the majority of 2022, European news in the first half of the week was dominated by Russia and commodities. The EU announced the sixth set of sanctions against Russia on Monday which laid out plans for a partial ban on Russian oil. As many European nations are still heavily dependent on Russian energy, the Euro slightly lost ground. However, losses were limited by Shanghai’s announcement that manufacturers will go back to work which supported risk currencies. In relation to macroeconomic data, inflation continued to surprise to the upside providing more pressure for Madame Lagarde to hike rates out of negative territory in H2. Germany’s annual inflation hit a multi-decade high at 8.7% and the eurozone data also surprised to the upside (8.1%). Markets price in 130bp of hikes in 2022 supporting the single currency, with 25 bps fully priced in for July.


Week ahead

All eyes look toward next week’s ECB Interest Rate Decision and GDP data. The central bank is expected to end its net asset purchases in the first weeks of July to prepare the ground for the July hike.


Calendar

Wednesday 10am | GDP (Q1)

Thursday 12:45pm | Interest Rate Decision


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