• Audere Research

Weekly Foreign Exchange Analysis ~ 14 March 2022

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GB Pound

Sterling was weak, losing ground against both USD and EUR.


Movements

GBPUSD opened at 1.3202 and mimicked the previous week’s movements. Early this morning the pair fell to its lowest level since November 2020, at 1.3010. It ended the week with a loss of 1.18% at 1.3046


GBPEUR opened at 1.2129 and came under pressure during the first half of the week, falling by more than 2.5% and reaching a 1-month low at 1.1880 on Wednesday. It then consolidated during the second part of the week, to close at 1.1929 for a heavy loss of 1.65%.


Movement rationale

As the crisis in Ukraine worsens, with intensifying use of artillery and missile strikes on residential areas, global risk sentiment remained subdued. A banning on imports of Russian oil by the US and UK, together with multinational companies withdrawing or suspending their operations in Russia, sparked further uncertainty, and led to a sell-off of risk currencies like the Pound, which dropped to a 16-month low against the Dollar. Upbeat UK economic data released during the week, including Industrial production, Manufacturing production, and UK GDP (with the latter revealing the strongest monthly expansion since June, although the data does not consider energy price inflation) did little to support the UK currency, which ended the week with heavy losses against major rival currencies.


Week ahead

All eyes look toward the monetary policy vote on interest rates this Thursday and unemployment data on Tuesday. Increased volatility is expected should the vote differs from the market prediction of 25bps increase.


Calendar

Tuesday 7am | ILO Unemployment Rate (Jan)

Thursday 12pm | BoE Interest Rate Decision


US Dollar

The Dollar continued to gain against the Pound but allowed the Euro to recoup some of the previous week’s losses.


Movements

EURUSD opened at 1.0884 and during the first part of the week had a strong recovery from previous weeks’ losses, gaining 2% and briefly trading above the 1.11 level. It then reversed part of the movement, moving back below 1.10 and closing at 1.0936 (+0.47%).


GBPUSD opened at 1.3202 and mimicked the previous week’s movements. Early this morning the pair fell to its lowest level since November 2020, at 1.3010. It ended the week with a loss of 1.18% at 1.3046


Movement rationale

While commodity volatility in Europe inflates oil prices due to European nations’ dependence on Russian oil via Nordstream 2, the US announced it will ban oil imports from Russia in an aim to deprive Putin of economic resources. The ongoing geopolitical uncertainty continues to favour the Dollar, which remained further supported by expectations of a rate hike in this week’s policy meeting - US Inflation hit a new 40-year high at 7.9%, in line with expectations. However, mid-week, risk appetite returned to the market, as Russian and Ukrainian officials started another round of negotiation and President Zelensky said that he is no longer pressing for NATO membership for his country. The Dollar reacted by moving lower on Wednesday, especially against the Euro. The US currency then recovered some ground against the Single currency and moved to a new multi-year high against GBP, to end the week mixed.


Week ahead

It will be another volatile week, with a busy monetary policy agenda across the world. The Fed is expected to deliver a 25bp hike this week, with more to come after that. However, the market has reduced its expectation of the total number of rate hikes over the course of the year due to ongoing events in Ukraine.


Calendar

Wednesday 12:30pm | Retail Sales (Feb), 6pm | Fed Interest Rate Decision

Thursday 12:30pm | Philadelphia Fed Manufacturing Survey (Mar)


Euro

The Euro recovered on improved market sentiment and ECB policy stance.


Movements

EURUSD opened at 1.0884 and during the first part of the week had a strong recovery from previous weeks’ losses, gaining 2% and briefly trading above the 1.11 level. It then reversed part of the movement, moving back below 1.10 and closing at 1.0936 (+0.47%).


GBPEUR opened at 1.2129 and came under pressure during the first half of the week, falling by more than 2.5% and reaching a 1-month low at 1.1880 on Wednesday. It then consolidated during the second part of the week, to close at 1.1929 for a heavy loss of 1.65%.


Movement rationale

The Euro remained highly volatile, with the currency having fallen fast since the war started. Eurozone’s exposure to the conflict is especially high due to its energy dependence on Russia, making the single currency highly correlated with oil prices. Investors have become increasingly worried that energy prices will spark stagflation and slow down its recovery from the pandemic. However, as talks between Ukraine and Russian diplomats improved sentiment, the Euro managed to recover some ground against the Dollar and Pound during the week. Alongside volatility explained by Ukraine tensions, there was a busy macroeconomic agenda. On Tuesday inflation hit a record of 5.8% with the ECB calling it ‘a negative surprise’. From this, investors looked eagerly toward the Thursday policy meeting. The ECB announced it will phase out its stimulus, opening the door to an interest rate hike before the end of 2022. Eurozone bond yields soared aggressively as traders ramped up rate hike bets. The currency also reacted, spiking c.0.7% higher after the announcement. However, the movement was short lived, and it quickly retracted.

Week ahead

A light economic calendar will keep the focus on geopolitical uncertainty.


Calendar

Tuesday 10am | ZEW Survey – Economic Sentiment (Mar)



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