• Audere Research

Weekly FX Outlook January 24th


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GB Pound


Sterling hit a new multi-year high against the Euro.


Movements

GBPUSD opened at 1.3681 and moved lower during the first part of the week, to reach 1.3570. It then attempted a recovery on Wednesday, before resuming the downtrend and closing at 1.3547, for a weekly loss of 0.98%.


GBPEUR opened at 1.1974 and had a quiet start of the week. It then jumped up on Tuesday and reached 1.2038 on Thursday, the highest level since February 2020. It then lost 0.8% of Friday, giving away all previous gains and closing the week unchanged.


Movement rationale

It was a week of consolidation for Sterling, after the strong recent gains made the currency one of the strongest performers of 2022 so far. Despite strong labour data reported on Monday, with unemployment rate falling to 4.1% in November, and a high UK inflation print on Wednesday (5.4% annualised, the highest reading in almost 30 years), the Pound lost ground against major rivals. This was likely due to already high expectations of monetary tightening in light of the ongoing UK economic recovery, with the market fully pricing a rate hike at the next BoE’s meeting. Nevertheless, GBP managed to hit a near 2-year high against Euro on Thursday, breaking the 1.20 level, as the single currency experienced some weakness. Sterling then dropped on Friday, as disappointing UK Retail Sales was much weaker than forecasted.

Week ahead

A light economic agenda will leave the GBP primarily affected by market sentiment and investors’ positioning.


Calendar

Monday 9am | Markit Services PMI (Jan)



US Dollar


The Dollar regains some ground amid deteriorating risk sentiment and rising rate hike expectations.


Movements

EURUSD opened at 1.1425 and traded with a negative biased all week, particularly on Tuesday. It closed with a negative performance of 0.94% at 1.1318.


GBPUSD opened at 1.3681 and moved lower during the first part of the week, to reach 1.3570. It then attempted a recovery on Wednesday, before resuming the downtrend and closing at 1.3547, for a weekly loss of 0.98%.

Movement rationale

After the heavy losses suffered in the previous week, the Dollar managed to recover ground. A negative risk sentiment, fuelled by rising geopolitical tensions between Russia and Ukraine, and renewed upward pressure on oil prices, pushed stock indices lower and safe heaven assets (such as the US currency) up. Also, growing expectations that US rates could reach 0.75% by March, pushed 10-year US yield to its highest level since late 2019, increasing demands for US assets and the Dollar.

Week ahead

It will be a busy week for the Dollar, with a heavy economic agenda and all eyes on Wednesday Fed’s meeting. It is expected to be a non-event, as the bank is anticipated to leave interest rates unchanged but could potentially bring forward an immediate end to its quantitative easing programme. Investors with closely listen the Fed’s comments for market directions.


Calendar

Monday 2:45pm | Markit PMI Composite (Jan)

Tuesday 3pm | Consumer Confidence (Jan)

Wednesday 7pm | Fed Interest Rate Decision

Thursday 1:30pm | Durable Goods Orders (Dec), Gross Domestic Product (Q4)


Euro


The Euro had a mixed week.


Movements

EURUSD opened at 1.1425 and traded with a negative biased all week, particularly on Tuesday. It closed with a negative performance of 0.94% at 1.1318.


GBPEUR opened at 1.1974 and had a quiet start of the week. It then jumped up on Tuesday and reached 1.2038 on Thursday, the highest level since February 2020. It finally lost 0.8% on Friday, giving away all previous gains and closing the week unchanged.


Movement rationale

Despite some positive data, with economic sentiment improving significantly in the Eurozone and inflation picking up from 4.9% to 5.0% in December putting further pressure on the ECB to turn more hawkish, the single currency experienced some weakness during the first half of the week. Expectations of rate hikes in the near term in US and UK, probably explain why the Euro is under renewed pressure. However, the currency managed to recovery on Friday, advancing 0.5% and 0.8% respectively against USD and GBP.

Week ahead

The Euro-zone economic calendar will be relatively busy, including the following data releases:


Calendar

Monday 9am | Markit PMI Composite (Jan)

Tuesday 9am | IFO – German Business Climate (Jan)

Thursday 10am | Consumer Price Index (Dec)

Friday 3pm | German Gross Domestic Product (Q4), Consumer Confidence (Jan)




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