• Audere Research

Weekly FX Outlook December 13th


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GB Pound


Sterling reached a new 2021 low against the Dollar


Movements

GBPUSD opened at 1.3250 and remained under pressure, reaching a new year low (1.3160) on Wednesday. It closed at 1.3235, for a loss of 0.11%.


GBPEUR opened at 1.1739 and had a mixed week. It dropped to a 1-month low on Wednesday (1.1630) before recouping all losses and closing broadly unchanged at 1.1749 (+0.08%).


Movement rationale

Whilst it was a relatively quiet week in the foreign exchange market, with little economic data released in UK, Sterling continues to be under pressure on concerns over new Covid measures. On Wednesday it fell to its lowest level in more than a year against the Dollar, as the prospect of new Covid restrictions reduced the probability that the BoE will raise interest rates in the near term. The likelihood of an increase in borrowing costs has drop from 75% before the discovery of the new variant, to roughly 30% at present. On Friday, economic data disappointed the market, with monthly GDP printing at 0.1% versus an expectation of 0.4%, and a contraction in industrial production and construction also reported at the same time. However, the Pound managed to recoup some of the losses seen earlier during the week as Omicron fears waned amid hopes some vaccines might be able to neutralise the variant.


Week ahead

The BoE meets on Thursday, with the market expecting a no rate change decision following concerns the spread of new Covid variant:


Calendar

Tuesday 7am | ILO Unemployment Rate (Oct)

Wednesday 7am | Consumer Price Index (Nov), Retail Sales (Nov)

Thursday 12pm| BoE Interest Rate Decision

Friday 7am | GfK Consumer Confidence (Dec)



US Dollar


The Dollar had a relatively quiet week.


Movements

EURUSD opened at 1.1287 and after a quiet start rose to 1.1355 on Wednesday. It then gave back all gains and closed the week largely where it started at 1.1265 (-0.2%).


GBPUSD opened at 1.3250 and remained under pressure, reaching a new year low (1.3160) on Wednesday. It closed at 1.3235, for a loss of 0.11%.



Movement rationale

It was a calm week for the Dollar, with little movement against major rival currencies, as investors wait for more clarity regarding the potential impact of the new Covid variant. The USD Index remains closed to a 16-month high, being supported by expectations of an accelerating unwind of US monetary stimulus. US inflation data, published on Friday, accelerated to 6.8%, the biggest year-on-year rise since June 1982. The broad-based rise is led by gasoline prices and is likely to push the Fed to take a more aggressive stance to combat rising prices.


Week ahead

The US Federal Reserve meets on Wednesday, with no change in rates anticipated. However, investors may learn how quickly the central bank will taper its bond-buying program and get some hints on when it would start raising rates next year.


Calendar

Wednesday 1:30pm | Retail Sales (Nov), 7pm | Fed Interest Rate Decision

Thursday 1:30pm | Initial Jobless Claims (Dec 10), Markit PMI Composite (Dec)



Euro


Euro was firm.


Movements

EURUSD opened at 1.1287 and after a quiet start it rose to 1.1355 on Wednesday. It then gave back all gains and closed the week largely where it started at 1.1265 (-0.2%).


GBPEUR opened at 1.1739 and has a mix week. It dropped to a 1-month low on Wednesday (1.1630) before recouping all losses and closing broadly unchanged at 1.1749 (+0.08%).



Movement rationale

Europe’s single currency has shown some resilience since the end of November, consolidating just above 1.12 against the Dollar whist recovering some ground against Sterling, helped by a recovery in risk-on assets. The currency also benefitted from a better-than-expected ZEW economic sentiment index from Germany and improved GDP numbers for the Eurozone. This is despite a gloomier outlook due to a resurgence of covid cases, with Germany close to 70k new daily infections and the highest number of deaths since February. Germany also saw its new Chancellor, Olaf Sholz, sworn in on Wednesday, effectively ending Angela Merkel’s 16 years at the helm of the world’s fourth largest economy


Week ahead

The main event for the Euro this week will be ECB monetary meeting, with the central bank likely to turn gently but steadily more hawkish:


Calendar

Tuesday 10am | Industrial Production (Oct)

Thursday 9am | Markit PMI Composite (Dec), 12:45am | ECB Interest Rate Decision

Friday 9am | IFO – Business Climate (Dec), Consumer Price Index (Nov)



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