• Audere Research

Weekly FX Outlook January 31st


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GB Pound


Sterling was mixed, advancing against the Euro but losing ground to the Dollar.


Movements

GBPUSD opened at 1.3547 and progressively lost value, reaching a 5-week low on Thursday at 1.3358. It then slightly recovered to end the week with a loss of 0.86% at 1.3430.


GBPEUR opened at 1.1970 and initially moved down, losing 0.8% on Monday. It then started to appreciate, regaining the 1.20 level and closing with a weekly gain of 0.48% at 1.2027.


Movement rationale

Sterling started the week on the back foot, falling approx. 0.8% against main rival currencies as risk-off environment and tensions between Russia and Ukraine continued to grow. Calm then returned to the market, helped somewhat by diminishing investor anxiety over the ongoing geopolitical standoff. The Pound managed to regain ground, getting back above 1.20 against the Euro. However, it continued to move lower versus the Dollar, although this was more caused by USD strengthening than a weakening UK currency. Despite the ongoing political uncertainty in the UK, with PM Johnson continuing to face pressure on alleged Downing Street lockdown parties, GBP has remained fairly unaffected so far. In terms of data, the PMI index, which monitors British business activity, cooled unexpectedly to an 11-month low as the Omicron variant hit demand for some consumer facing services.


Week ahead

All investors’ eyes will be on the BoE meeting on Thursday. As the market widely expects that the central bank will choose to hike rates again on Thursday, the key to the Pound’s direction will be any hints on the pace of future hikes.


Calendar

Tuesday 9:30am | Markit Manufacturing PMI (Jan)

Thursday 12pm | BoE Interest Rate Decision



US Dollar


The Dollar posted its biggest weekly gains since June on rate hike expectations.


Movements

EURUSD opened at 1.1318 and continued the downtrend, steadily heading downwards to 1.1120 on Friday, the lowest level since June 2020. It posted a heavy weekly loss of 1.35% (1.1165).


GBPUSD opened at 1.3547 and progressively lost value, reaching a 5-week low on Thursday at 1.3358. It then slightly recovered to end the week with a loss of 0.86% at 1.3430.

Movement rationale

The Dollar made solid gains, recording its best weekly performance in 7 months amid a deterioration in investor risk appetite. The market continues to seek safe haven assets which keeps the US dollar on the rise. The Greenback was also boosted by a hawkish tone coming out of the FOMC meeting on Wednesday, as Fed Chairman Jay Powell indicated that it would hike rates in March and was prepared to raise interest rates several times this year in an effort to fight inflation pressure, the highest in 40 years. Further, the Dollar continue to benefit from an improved economic outlook, with the US posting on Thursday its fastest economic growth since 1984, as the fourth quarter 2021 GDP showed an impressive 6.9% annualised increase

Week ahead

Labour data will be this week’s focus, with US payroll figures out on Friday.


Calendar

Tuesday 3pm | ISM Manufacturing PMI (Jan)

Wednesday 1:15pm | ADP Employment Change (Jan)

Thursday 1:30pm | ISM Services PMI (Jan)

Friday 1:30pm | Nonfarm Payrolls (Jan)


Euro


The Euro was weak.


Movements

EURUSD opened at 1.1318 and continued the downtrend, steadily heading downwards to 1.1120 on Friday, the lowest level since June 2020. It posted a heavy weekly loss of 1.35% (1.1165).


GBPEUR opened at 1.1970 and initially moved down, losing 0.8% on Monday. It then started to appreciate, regaining the 1.20 level and closing with a weekly gain of 0.48% at 1.2027.


Movement rationale

The Euro remains under pressure, as tightening monetary policy in other developed countries is not followed in Europe, at least for now. Despite the current level of inflation of 5%, ECB chief Christine Lagarde seems in no rush to change the bank’s monetary stance to mitigate rising prices. Also, the single currency is negatively affected by the Russia-Ukraine geopolitical crisis, given Europe’s high dependency on Russian energy. Turning to economic data releases during the week, a few disappointing readings came through. This included disappointing Eurozone services and poor economic sentiment, which fell in January to a 9-month low.

Week ahead

Another busy economic calendar in the Euro-zone, with the EU releasing its latest inflation figures and December Retail Sales. The ECB will hold a monetary policy meeting on Thursday, which is not expected to deliver any surprise to the market.


Calendar

Monday 10am | Gross Domestic Product (Q4)

Tuesday 9am | German Retail Sales (Dec), Unemployment Rate (Dec)

Wednesday 10am | Consumer Price Index (Jan)

Thursday 12:45pm | ECB Interest Rate Decision, Markit PMI Composite (Jan)

Friday 10am | German Retail Sales (Dec)




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