• Audere Research

Weekly FX Outlook January 17th


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GB Pound


Sterling remains supported.


Movements

GBPUSD opened at 1.3590 and continued to move up, reaching on Thursday the highest level since end of October (1.3748). It then gave back part of the gains on Friday, to close at 1.3681 (+0.67%).


GBPEUR opened at 1.1991 and traded in a narrow range last week, trading briefly above 1.20 for the first time since February 2020. It closed broadly unchanged at 1.1974 (-0.15%).


Movement rationale

Sterling continues to be in demand, hitting new highs against Euro and Dollar for what is, thus far, the currency’s best start to a year since 2018. Traders remain optimistic about the UK outlook, pushing the currency higher. Data revealed that November’s GDP grew faster than expected (a monthly rate of 0.9% against 0.4% forecasted), bringing back the economy to pre-pandemic levels. Also, a potential shift to the endemic stage of Covid-19 and the BoE entering a tightening cycle (markets currently price-in an 80% chance of a rate hike at the bank’s meeting, beginning of February) is supportive for the GBP`. The domestic political turmoil caused by the revelation of parties held at Downing Street during nationwide lockdowns, has failed to derail the Pound’s race so far. On the contrary, according to some strategists, the prospect of the prime minister’s resignation could give the currency a further boost, bringing more stability in the government and therefore benefitting the UK currency.

Week ahead

A rich economic calendar, including employment data and inflation figures for December, could provide more hints on the BoE monetary policy direction, with impact on the UK currency.


Calendar

Tuesday 7am | ILO Unemployment Rate (Nov)

Wednesday 7am | Consumer Price Index (Dec)

Friday 7am | Retail Price Index (Dec)



US Dollar


The Dollar was weak.


Movements

EURUSD opened at 1.1332 and endured a mid-week rally, hitting a 3-month high during Friday’s early hours (1.1481). It finally ended the week with a gain of 0.82% at 1.1425.


GBPUSD opened at 1.3590 and continued to move up, reaching on Thursday the highest level since end of October (1.3748). It then gave back part of the gains on Friday, to close at 1.3681 (+0.67%).

Movement rationale

The Dollar sold off last week, amid a widespread positive risk sentiment, which was detrimental for the US safe-haven currency. Also, comments by the US Fed Chair Powell were taken as less hawkish than expected compared to when he last spoke in December, signalling that the central bank has not made a decision on reducing its nearly $9 trillion balance sheet, pushing the Greenback lower. USD weakness accelerated on Wednesday, despite inflation surged at 7% in December, the biggest year-on-year increase since June 1982. The Dollar fall was partly attributable to investor positioning and a market with highly hawkish expectations for Fed policy this year. USD selling pressure eased on Friday as weaker risk appetite emerged in global financial markets, allowing the currency to recoup part of the previous losses.

Week ahead

It will be a week with a light economic agenda for the Dollar, which will look at risk sentiment for market direction.


Calendar

Thursday 1:30pm | Initial Jobless Claims (Jan 14), Philadelphia Fed Manufacturing Survey (Jan)


Euro


The Euro was strong, recovering further ground against the Dollar.


Movements

EURUSD opened at 1.1332 and endured a mid-week rally, hitting a 3-month high on Friday’s early hours (1.1481). It finally ended the week with a gain of 0.82% at 1.1425.


GBPEUR opened at 1.1991 and traded in a narrow range, trading tepidly above 1.20 for the first time since February 2020. It closed broadly unchanged at 1.1974 (-0.15%).


Movement rationale

It was a positive week for the Euro, helped by some positive data and investors’ appetite for the single currency. Despite many countries still maintaining restrictions in place and the block’s GDP growth slowing down, Eurozone unemployment rate continued its rapid decline, falling to 7.2%, and closing the gap with the pre-pandemic readings. Further, Industrial production unexpectedly jumped in the Euro area. The improve outlook in the Eurozone seems to have attracted investors into the single currency, with Euro speculators increasing their bets for a fourth consecutive week and net EUR speculative positions turning bullish for the first time in more than 2 months - according to data published by the Commodities Futures Trading Commission.

Week ahead

With a light EU economic calendar ahead, the single currency is expected to remain quiet during the week


Calendar

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

Thursday 10am | Consumer Price Index (Dec)

Friday 3pm | Consumer Confidence (Jan)




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