• Audere Research

Weekly Foreign Exchange Analysis ~ 07 March 2022


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GB Pound


Sterling loses ground against the Dollar but reached a multi-year high versus the Euro.


Movements

GBPUSD opened at 1.3375 and moved lower during the first few trading sessions. It attempted a recovery on Wednesday, temporarily re-gaining 1% amid improved risk sentiment, before resuming the downtrend and closing the week at 1.3202, the lowest level since December 2021, for a loss of 1.29%.


GBPEUR opened at 1.1950 and steadily headed higher, breaking once again the 1.20 level, and closing the week at 1.2129 (+1.5%), a level not seen since July 2016.


Movement rationale

High volatility and low-risk appetite remain the main patterns in the FX market, which continued to be dominated by the Ukraine conflict. Russian troops have initiated a large-scale invasion, attacking critical infrastructure and residential areas, while launching missile strikes on Ukraine’s western cities. GBP is considered a high-beta currency and is therefore put under pressure during deteriorating risk sentiment. However, the currency is finding some support from expectations of a 3rd successive rate when it meets this month (although the chances of a 0.5% rate increase have declined substantially since Russia invaded Ukraine). Meanwhile GBP continues to be sold-off against the Dollar, hitting a 3-month low, whilst advancing to a 5-year high against the Euro.


Week ahead

Geopolitical headlines will dominate the currency evolution, with a light economic calendar.


Calendar

Friday 9:30am | Gross Domestic Product (Jan), Industrial Production (Jan)


US Dollar


The Dollar accelerates its gains as investors remain focused on geopolitics


Movements

EURUSD opened at 1.192 and continued to trade lower, breaking the psychological level of 1.10 and closing at 1.0884, the heaviest weekly fall in two years (-2.75%).


GBPUSD opened at 1.3375 and moved lower during the first few trading sessions. It attempted a recovery on Wednesday, temporarily regaining 1% amid improved risk sentiment, before resuming the downtrend and closing the week at 1.3202, the lowest level since December 2021, for a loss of 1.29%.


Movement rationale

The Dollar (with the Japanese Yen and Swiss Franc) continues to be one of the preferred currencies during the geopolitical crisis, given its safe-haven status. The escalation of the conflict, highlighted by the increasing bombarding of Ukrainian cities and Europe’s largest nuclear plant, together with liquidity concerns, is boosting demand for the Greenback. The USD reached respectively a 22-month and 3-month high against Euro and Sterling, in what was the strongest weekly performance since the outbreak of COVID. Also adding support to the currency were comments by Federal Reserve Chair Jerome Powell. In its semi-annual testimony to Congress the committee backed a 25-basis-point March rate hike. Even though macroeconomic data has been overshadowed by geopolitical headlines, it’s worth noting that both the US ISM manufacturing PMI and Nonfarm payrolls posted strong figures towards the end of the week.


Week ahead

It will be another volatile week, where on top of the USD sensitivity to the geopolitical situation, there will be inflation data released on Thursday.


Calendar

Thursday 1:30pm | Consumer Price Index (Feb)

Friday 3pm | Michigan Consumer Sentiment Index (Mar)


Euro


The Euro was sold-off as investors fly to safety assets.


Movements

EURUSD opened at 1.192 and continued to trade lower, breaking the psychological level of 1.10 and closing at 1.0884, the heaviest weekly fall in two years (-2.75%).


GBPEUR opened at 1.1950 and steadily headed higher, breaking once again the 1.20 level and closing the week at 1.2129 (+1.5%), a level not seen since July 2016.


Movement rationale

The Euro continues to be sold-off as risk appetite amongst investors has slipped further. The Euro recorded its

worst week in 9 months as the intensifying war and corresponding Russian sanctions. There’s an expectation that the geopolitical situation will slow economic growth in the Eurozone in the medium term. Also, even though the escalation of the conflict has further reduced expectations for interest rate hikes from major central banks this year, the ECB seems to remain well behind the curve, with both the Fed and BoE planning to raise sooner than their European counterpart. In terms of macroeconomic data, Eurozone inflation came out at 5.8% in February versus an expectation of 5.4%.

Week ahead

The key macroeconomic event will be the ECB meeting on Thursday. Whilst no rate hike is expected, the ECB had been preparing for gradually turning off the money taps and investors will be anxious to understand to which extent the Ukraine crisis could alter the ECB’s monetary policy stance.


Calendar

Monday 9am German Retail Sales (Jan)

Tuesday 10am | Gross Domestic Product (Q4)

Thursday 9am | ECB Interest Rate Decision



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