• Audere Research

Weekly FX Outlook December 29th



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GB Pound

Sterling moved higher on news of the Brexit deal.


Movements

GBPUSD opened at 1.3274 and moved in a volatile upward range to briefly reach 1.36 level on the 24th in a nervous and thin market environment. In then lost some ground and consolidated around 1.35 to close with a positive gain of 1.8% at 1.3513.


GBPEUR opened at 1.0882 and similarly to GBPUSD it moved higher during the first half of the week, hitting a 1-month high at 1.1160, before giving back part of the gain to close with an appreciation of 1.32% at 1.1025.


Movement rationale

Last week we witnessed a key moment as, after a long and bumpy journey, on Thursday the EU and UK finally agreed a trade deal. Sterling reacted generally higher, although during the first part of the week, positive Brexit headlines conflicted with negative news of the UK lockdown. GBP’s volatility level increased further in this context, with market swings of more than 1% against most rival currencies throughout the week. As signs that the two parties were ready to compromise on fishing rights, Sterling appreciated significantly but did not reach previous highs versus the Dollar and the Euro. Quite significantly, after the initial run up into the excitement of the deal, the currency started to lose some ground, also as it became clear that the Brexit deal was limited for financial services, with Britain having to wait until the new year for details on market access. On the economic front, the UK recovered faster than expected in Q3, as data showed the economy is 8.6% smaller than it was at the end of 2019, compared with an initial estimate of 9.7%.


Week ahead

Sterling is expected to remain volatile with year-end flows likely to dominate this week’s movement.


Calendar

Wednesday | UK Parliamentary Vote on Brexit.

US Dollar

The US Dollar was relatively muted.


Movements

EURUSD opened at 1.2196 and traded range bound, remaining within the 1.2150 to 1.2250 range to end the week at 1.2254 (+0.47%).


GBPUSD opened at 1.3274 and moved in a volatile upward range to briefly reach 1.36 level on the 24th in a nervous and thin market environment. In then lost some ground and consolidated around 1.35 to close with a positive gain of 1.8% at 1.3513.


Movement rationale

Dollar movements were somewhat limited and sideways last week, as daily moves started to be mainly driven by lower liquidity rather than economic rationale. The focus remained the pandemic aid legislation, following Trump’s tweet that showed a strong criticism and refusal to accept the bipartisan deal, asking the Congress for an amendment. The drama came to an end on Sunday when Trump finally signed the $900 billion pandemic relief package. GDP data was released on Tuesday, with Q3 growth revised slightly than previous estimates. The US economy remains 3.5% below its level at the end of 2019.


Week ahead

As we enter the last week of the year, there is a light economic data agenda. Reduced market liquidity has the potential to influence currencies’ movements:


Calendar

Thursday 2:30pm | Initial Jobless Claims (Dec 25)

Euro

The Euro consolidated previous weeks’ gains.


Movements

EURUSD opened at 1.2196 and traded range bound, remaining within the 1.2150 to 1.2250 range to end the week at 1.2254 (+0.47%).


GBPEUR opened at 1.0882 and similarly to GBPUSD it moved higher during the first half of the week, hitting a 1-month high at 1.1160, before giving back part of the gain to close with an appreciation of 1.32% at 1.1025.


Movement rationale

The Euro remained generally supported last week, losing ground versus the GBP but gaining slightly against other rival currencies. With no major data released (except for Euro-zone consumer confidence which improved slightly) and the holiday season, the currency was also driven by thinner market liquidity.


Week ahead

As we enter in the last week of the year, there is no major economic data release. Reduced market liquidity has the potential to influence currencies’ movements.


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