• Audere Research

Weekly Foreign Exchange Analysis ~ 14 February 2022


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GB Pound


Sterling recovered against the Euro.


Movements

GBPUSD opened at 1.3535 and predominantly traded in a narrow range (1.3520-1.36) to close the week unchanged.


GBPEUR opened at 1.1838 and found support following a sharp sell-off in the previous week. After a quiet start, it moved up to 1.1960 on Friday. It ended the week with a gain of 0.86% at 1.1940.


Movement rationale

After a mixed initial reaction to a hawkish BoE meeting, Sterling had a solid performance, recouping most of its losses against the Euro from the week before. With a limited economic calendar in the first half of the week, the Pound tried to get some direction from BRC retail sales data, which reported upbeat figures and provided some initial support. Friday was a busy day for the currency, as GDP and Industrial Production were released. The official figures revealed that the UK economy grew 7.5% in 2021, suffering a smaller economic hit in December than first thought. Manufacturing Production was also slightly better than expected, overall pushing Sterling higher against major rival currencies and closing the week on a positive tone.


Week ahead

The UK economy will release employment data this week. There will also be inflation figures released on Thursday, which could put the focus again on the BoE monetary policy.


Calendar

Tuesday 7am | ILO Unemployment Rate (Dec)

Wednesday 7am | Consumer Price Index (Jan)

Friday 7am | Retail Sales (Jan)



US Dollar


The Dollar closed widely unchanged despite high volatility on Thursday, as inflation hit the fastest annual rise in 40 years.


Movements

EURUSD opened at 1.1433 and showed little volatility until Thursday when inflation data caused sharp movements in the pair, although it finished widely unchanged at close. It then headed lower on Friday to end the week at 1.1338 (-0.83%).


GBPUSD opened at 1.3535 and traded most of the time in a narrow range (1.3520-1.36) to close the week unchanged.

Movement rationale

The Dollar showed little sign of volatility during the first half of the week, as all attention was centred on the much-awaited CPI figures released on Thursday. Traders were not disappointed, with the Greenback experiencing large price swings after the report revealed the biggest year-on-year price increase since February 1982, at 7.5%, leading investors to boost expectations for the Fed to act promptly to curb soaring inflation. USD initially moved higher by almost 0.5%, then dropped 0.8% before pairing all losses at the end of the trading session. On Friday the currency was steady, despite US consumer sentiment dropping to 11-year lows, missing expectations considerably.

Week ahead

Thursday will be again the key day of the week, as Retail Sales data and Minutes from the Fed can provide more certainty on the Central Bank monetary policy guidance.


Calendar

Wednesday 1:30pm | Retail Sales (MoM)(Jan), 7pm | FOMC Minutes

Thursday 1:30pm | Initial Jobless Claims (Feb 11)


Euro


The Euro lost some ground after cautious ECB comments on rate hikes and inflation.


Movements

EURUSD opened at 1.1433 and showed little volatility up to Thursday when inflation data caused sharp movements in the pair, although it finished widely unchanged at close. It then headed lower on Friday to end the week at 1.1338 (-0.83%).


GBPEUR opened at 1.1838 and found some support following the sharp sell-off in the previous week. After a quiet start, it moved up to 1.1960 on Friday. It ended the week with a gain of 0.86% at 1.1940.


Movement rationale

After Mrs. Lagarde fuelled expectations of faster policy tightening in the previous week, investors were looking for some confirmatory comments from the ECB, with few policymakers’ speeches scheduled to take place during the week. However cautious comments were made by the ECB President, calming market expectations for rate hikes. She stated that ‘raising rates would not solve any of the current problems’ and that the central bank is confident that inflation will fall back in the course of the year, putting the Euro on the defensive. The Single Currency also suffered by disappointing German industrial production, whilst the geopolitical tension between Russia and Ukraine risks putting pressure on the EUR, as an escalation would be damaging for the economic recovery given Europe’s high dependency on Russian gas imports.

Week ahead

The Euro-zone economic calendar includes the following:


Calendar

Tuesday 10am | Gross Domestic Product (Q4), ZEW Survey – Economic Sentiment (Feb)

Wednesday 10am | Industrial Production (Dec)

Friday 3pm | Consumer Confidence (Feb)




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