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Weekly FX Outlook March 15th



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GB Pound

Sterling remains firm.


Movements

GBPUSD opened at 1.3840 and steadily appreciated during the week to briefly trade back above 1.40 early Friday morning. It then partly retraced to close at 1.3931 (+0.66%).


GBPEUR opened at 1.1637 and traded broadly sideways and just shy of the 1.17 mark (which corresponds to the 1-year high) before ending the week only slightly higher (+0.32%) at 1.1674.


Movement rationale

Sterling started the week making gains versus its main rival currencies on the back of the success of the UK’s vaccine rollout. UK Covid figures have improved dramatically, with cases now down 90% from the peak, daily hospitalizations down 80% and deaths 82% lower, raising expectations for a quick reopening of the economy. However, since Wednesday the UK currency started to lose some momentum, also caused by some mixed economic data. UK Industrial and Manufacturing Production for January came out worse than expected. On the positive side, monthly GDP figures were better than expected at -2.9%. The currency also came slightly under pressure on concerns over UK-EU trade relations being hit more than expected by Brexit, as January’s UK trade report showed that UK trade with EU plunged in the first month post-Brexit.


Week ahead

The UK economic data calendar includes the following:


Calendar

Thursday 12pm | BoE Interest Rate Decision

Friday 7am | GfK Consumer Confidence (Mar)

US Dollar


The US Dollar was relatively soft.


Movements

EURUSD began the week at 1.1892 and initially traded down below 1.1840 (4-month low). It then recovered and moved gradually higher to reach 1.1990 on Thursday, closing with a small gain of 0.33% at 1.1932.


GBPUSD opened at 1.3840 and steadily appreciated during the week to briefly trade back above 1.40 early Friday morning. It then partly retraced to close at 1.3931 (+0.66%).


Movement rationale

The USD, after a short-lived rise on Monday, began trading with a negative bias, with all eyes focused on the $1.9tn stimulus bill. The stimulus package passed in the House Democrats on Wednesday, including a new round of direct payments for most Americans, tax credit expansion, additional federal unemployment benefits and $350bn in aid to state and local governments. IMF forecasts that the fiscal plan will increase US GDP by 5-6% over 3 years. The Dollar weakness was also driven by some ease in inflation concerns, as US inflation figures shown on Wednesday a CPI index only rising 0.4% in February. However, the currency experienced some intraday volatility during the week, trading up and down according to movements in Treasury yields, and particularly recovering some ground on Friday as yields moved higher.


Week ahead

USD is expected to have a relatively volatile week ahead, with the focus on the Fed meeting:


Calendar

Tuesday 12:30pm | Retail Sales (Feb)

Wednesday 6pm | Fed Interest Rate Decision

Thursday 1:30pm | Initial Jobless Claims (Mar 12)


Euro


The Euro was quiet.


Movements

EURUSD began the week at 1.1892 and initially traded down below 1.1840 (4-month low). It then recovered and moved gradually higher to reach 1.1990 on Thursday, closing with a modest gain of 0.33% at 1.1932.


GBPEUR opened at 1.1637 and traded broadly sideways and just shy of the 1.17 mark (which corresponds to the 1-year high) to end the week only slightly higher (+0.32%) at 1.1674.


Movement rationale

The Single currency was broadly stable during the week. With lack of progress in the vaccination programme, all attention was on the ECB meeting last Thursday, which kept rates on hold, as expected. However, it pledged to accelerate its bond buying programme over the next three months, in response to unwanted rising borrowing costs in the Eurozone. The inflation forecast was also revised significantly higher for 2021 (from 1% to 1.5%), though President Lagarde stressed that inflationary pressures will likely remain subdued over the next 3 years. Overall, the currency’s reaction to a dovish ECB stance and a moderately positive inflation outlook was substantially muted. Over the weekend Merkel’s conservative party suffered heavy losses in two German state elections, increasing unease over political paralysis.


Week ahead

The Eurozone economic data calendar includes the following:


Calendar

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

Wednesday 10am | Consumer Price Index (MoM)(Feb)


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