• Audere Research

Foreign Exchange Analysis ~ 8 August 2022

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GB Pound

Following the revision of growth and inflation forecasts from the BoE, the Pound suffered a selloff. GBP spent the remainder of the week recovering.


Movements

GBPUSD started the week at 1.2201 touching a high of 1.2294 on Monday. After a retracement on Tuesday the pair consolidated midweek until GBP lost 0.71% on Friday to close the week at 1.2097 for a weekly loss of -0.85%.


GBPEUR opened at 1.1916 going on to Gain on Monday and Tuesday. These gains were reversed in the latter half of the week with three consecutive days of losses. The pair closed at 1.1875 for a weekly loss of -0.35%.


Movement rationale

On Monday, the Pound performed well against majors on the back of broadly unchanged Manufacturing PMI. Whilst GBP gained 0.67% on Monday, the gains were retraced in Tuesday’s session as markets looked ahead to the interest rate announcement. On Wednesday GBP lost ground against USD and EUR due to slightly worse than expected composite PMI data which amplified concerns over UK growth. On Thursday, the Bank of England voted 8 to 1 for a 50bp rate hike, in line with consensus. However, moments after the announcement Sterling dropped considerably. The accompanying report detailed forecasts which included 13.3% inflation in Q4 and the 5 quarters of a recession beginning at the end of 2022. Despite a brief freefall, the Pound found support against the Dollar. GBPUSD even managed to post gains by the end of Thursday’s session. The Pound suffered losses against majors on Friday as fears of slowing growth weighed down on the currency.


Week ahead

Markets will continue to digest the interest rate announcement going into next week. Expect recessionary headwinds to weigh on the pound.


Calendar

Monday 12.01am | Retail Sales

Friday 7am | GDP (Q2)


US Dollar

The dollar was supported last week by strong employment data.


Movements

EURUSD opened at 1.0238 before a 0.95% loss on Tuesday. The 0.78% gain on Thursday was short-lived as the pair traded lower on Friday closing the week at 1.0187 for a weekly loss of -0.5%.


GBPUSD started the week at 1.2201 touching a high of 1.2294 on Monday. After a retracement on Tuesday the pair consolidated midweek until GBP lost 0.71% on Friday to close the week at 1.2097 for a weekly loss of -0.85%.


Movement rationale

Despite US manufacturing PMI beating expectations on Monday (52.8 Vs 52 consensus), the Dollar lost against GBP and EUR. Negative GDP the week before likely weighed on the Greenback. On Tuesday the EURUSD lost just under 1% due to hawkish comments from multiple Fed members. On Wednesday, the US composite PMI surprised to the upside beating last month and expectations for this month. This failed to translate into USD gains, partially due to geopolitical tensions in Taiwan. Pelosi pledged support for the nation on her visit which China responded to with military drills near Taiwanese ports. Thursday was particularly volatile for the greenback. GBPUSD aggressively dropped following the interest rate announcement but fully recovered by the end of the day. For EURUSD, the single currency gained 0.78%. The dollar went into the weekend gaining on GBP and EUR. Non-farm payrolls doubled last month’s print at 528k jobs added which considerably beat expectations.


Week ahead

All eyes look ahead to inflation data on Wednesday. A hot print would give more credence to 75bp at the next Fed meeting.


Calendar

Wednesday 1.30pm | CPI

Thursday 1.30pm | Initial Jobless Claims


Euro

The Euro struggled to shrug of poor retail sales data.


Movements

EURUSD opened at 1.0238 before a 0.95% loss on Tuesday. The 0.78% gain on Thursday was short-lived as the pair traded lower on Friday closing the week at 1.0187 for a weekly loss of -0.5%.


GBPEUR opened at 1.1916 going on to Gain on Monday and Tuesday. These gains were reversed in the latter half of the week with three consecutive days of losses. The pair closed at 1.1875 for a weekly loss of -0.35%.


Movement rationale

Price action on Monday was muted as unemployment data was unchanged from last month at 6.6%. Tuesday was more volatile for the Euro which lost 0.95% against the dollar following US PMI data. On Wednesday, the pair traded flat despite a serious slip in retail sales. Compared to 0.4% in May, June’s retail sales were far from consensus at -1.2%. This is another bleak reminder for Eurozone growth with a recession by year-end looking increasingly likely. Despite this, the Euro performed well against the dollar on Thursday retracing 0.78%. For GBPEUR the single currency gained for three consecutive days going into the weekend. Rather than Euro strength, this is likely due to Sterling uncertainty following the interest rate announcement.


Week ahead

A quiet economic calendar next week may mean price action will be in line with risk appetite.


Calendar

Friday 10am | Industrial Production


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