• Audere Research

Weekly FX Outlook December 6th


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GB Pound


Sterling suffers another weekly loss against Dollar and Euro.


Movements

GBPUSD opened at 1.3327 and experienced high intra-day volatility, especially on Tuesday when it lost more than 1% and briefly traded below 1.32, its lowest level since December 2020. It then quickly recovered before losing ground again towards the end of the week, and closing at 1.3250, for a loss of 0.58%.


GBPEUR opened at 1.1824 and steadily moved lower to hit a 3-week low just below 1.17 level (1.1691). It closed the week with a loss of 0.72% at 1.1739.


Movement rationale

In the absence of major economic data release, Sterling fell against most of its rival currencies last week, with the currency remaining highly sensitive to global developments. In particular, growing concerns that the Omicron COVID-19 variant could have a negative impact on the UK economy during the coming winter period. This pushed back expectations for an interest rate rise in December and weighed on the Pound, which hit a new low for the year against the Dollar. A mildly disappointing manufacturing PMI report, which slightly declined as soaring cost pressures curb growth, also added to concerns over the UK outlook.


Week ahead

A light UK economic calendar should have a limited impact of the Pound:


Calendar

Friday 7am | Gross Domestic Product (Oct), Industrial Production (Oct)



US Dollar


The Dollar had a volatile week.


Movements

EURUSD opened at 1.1268 and traded all week in a volatile range (1.1250-1.1370) before finally closing broadly unchanged at 1.1287 (+0.17%).


GBPUSD opened at 1.3327 and experienced high intra-day volatility, especially on Tuesday when it lost more than 1% and briefly traded below 1.32, its lowest level since December 2020. It then quickly recovered before losing ground again toward the end of the week and closing at 1.3250, for a loss of 0.58%.


Movement rationale

Uncertainty over COVID and the impact on monetary policy is fuelling volatility in the Dollar, leading to the FX market volatility hovering near a 9-month peak on Thursday. USD benefitted once again from negative risk sentiment, as the continued spread of Omicron is buoying safe-haven assets like the Dollar. Further, the Federal Reserve communications have taken on a more hawkish tone, with Chair Powell removing from the narrative the word transitory in regard to inflation and signalling that the central bank may accelerate tapering sooner than expected. The Greenback jumped more than 1% against its peers on the comment, before quickly losing most of this gain shortly afterwards. It then held firm on Friday, despite the release of a weaker-than-expected US jobs figures, as the report still showed positive revisions and relatively solid data.


Week ahead

The main event on the US economic calendar this week will be Friday’s inflation data.


Calendar

Thursday 1:30pm | Initial Jobless Claims (Dec 3)

Friday 1:30pm | Consumer Price Index (Nov), Michigan Consumer Sentiment Index (Dec)



Euro


Euro had a relatively quiet week.


Movements

As investors are largely focussing on potential tightening of monetary policy in US and UK, the Euro is currently showing a less volatile behaviour than its peers. Despite inflation data last week revealing the cost of living in the Eurozone jumped to 4.9% in November (the highest level on record), the ECB is maintaining its dovish stance, reassuring that the spike in prices is transitory. Also, the single currency seems to be less sensitive to concerns over the new COVID variant than GBP and USD. In terms of data, manufacturing PMI came out a little worse than expected, but still showing a slight improvement compared to the previous month.


Movement rationale

Euro had a volatile week versus USD. Having struggled for most of the week, it recovered strongly on Friday as investors took the view that a USD interest rate rise was less likely due to Omicron. On Friday EUR moved dramatically from 1.1200 to 1.1330, suggestive of some short-covering. This EUR strength was despite a generally bearish EUR theme - the Fed and BOE look likely to increases interest rates before the ECB, while Europe’s faltering economy and COVID problems are also headwinds for EUR.


Week ahead

The Eurozone economic calendar includes the following:


Calendar

Tuesday 10am | Gross Domestic Product (Q3), ZEW Survey – Economic Sentiment (Dec)



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