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Weekly FX Outlook February 8th



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GB Pound

Sterling hit a new high versus the Euro.


Movements

GBPUSD opened at 1.3737 and traded lower in the first half of the week to reach 1.3563 before rebounding sharply on Thursday and closing relatively unchanged at 1.3707 (-0.22%).


GBPEUR opened at 1.1325 and traded in a tight range (1.1310-1.1370) during the first part of the week. It then moved higher on Thursday to hit a 9-month high (1.1443) and closed at 1.1395 (+0.62%).


Movement rationale

The volatility level of Sterling crosses decreased last week as limited data on the economic front lowered currency fluctuations. Worth noting that the UK business optimism is at its strongest level since May 2014 on positive news of the UK vaccine rollout, which is supporting Sterling, hitting a new high against the Euro. The major event was the BoE meeting last Thursday, after which GBP rallied by more than 1% versus major rivals after the statement cut expectations of negative interest rates.


Week ahead

The UK economic data calendar includes the following:


Calendar

Wednesday 5pm | BoE's Governor Bailey speech

Friday 7am | Gross Domestic Product (Q4), Industrial Production (Dec)

US Dollar


The US Dollar has a volatile and choppy week.


Movements

EURUSD opened at 1.2129 and gradually depreciated, breaking for the first time in more than a month the 1.20 level (1.1952). It partially recovered on Friday to close with a loss of 0.84% at 1.2028.


GBPUSD opened at 1.3737 and traded lower in the first half of the week to reach 1.3563 before rebounding sharply on Thursday and closing relatively unchanged at 1.3707 (-0.22%).


Movement rationale

A positive USD momentum is building up, with the currency continuing its recover path versus the Euro (on Thursday the pair briefly traded at the lowest level in 3 weeks). This was once again driven by an increase of US Treasury yield following stronger economic data (January US PMI hit a record high driven by strong demand), a push from the Democrats to pass the COVID relief package and progress in fighting the pandemic. However, a disappointing US jobs report on Friday put a stop to the rally, resulting in USD retreating against the major currencies and giving back most of the weekly gains.


Week ahead

USD is expected to have a relatively volatile week ahead, with a following economic agenda:


Calendar

Wednesday 1:30pm | Consumer Price Index (Jan), Fed's Chair Powell speech

Thursday 1:30pm | Initial Jobless Claims (Feb 5)

Friday 3pm | Michigan Consumer Sentiment Index (Feb)


Euro


The Euro remains weak.


Movements

EURUSD opened at 1.2129 and gradually depreciated, breaking for the first time in more than a month the 1.20 level (1.1952). It partially recovered on Friday to close with a loss of 0.84% at 1.2028.


GBPEUR opened at 1.1325 and traded in a tight range (1.1310-1.1370) during the first part of the week. It then moved higher on Thursday to hit a 9-month high (1.1443) and closed at 1.1395 (+0.62%).


Movement rationale

The Euro continues to be under pressure, with the currency’s shine seen at the end of last year looking very distant now and the EUR/USD pair dropping to a multi-month low of 1.1952 last Friday. This is mostly down to the slow vaccination programme, with just 3.5% of Germans vaccinated and 2.8% of France’s population vaccinated, adding speculation that the economic recovery in the region may take longer. On the economic front some encouraging data was recorded, with the Eurozone GDP falling by only -0.7% in the last quarter despite the pandemic restrictions in place, less than the market expected. Also, Eurozone inflation recorded the biggest increase in over a decade (hitting an 11-month high of 0.9% in January), ending five months of price falls and beating forecasts, although the pace is expected to slow in the next few months. Mario Draghi, former president of the ECB, has formed a new Italian government, ending (at least for now) the recent political uncertainty and had also affected the single currency.


Week ahead

This week is a quiet week on the Eurozone economic calendar, with the following main events to watch:


Calendar

Monday 7am | Harmonized Index of Consumer Prices (Jan)


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