• Audere Research

Weekly FX Outlook October 25th


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GB Pound


Sterling was firm on BoE rate hike bets.


Movements

GBPUSD opened at 1.3739 and traded with a positive bias, breaking the 1.38 level to reach a new 1-month high (1.3830). It then moved back below 1.38 to close with a weekly gain of 0.28% at 1.3777.


GBPEUR opened at 1.1857 and traded rangebound throughout the week, flirting several times with the highest level since February 2020 (1.1870). It then closed slightly lower at 1.1831 (-0.22%).


Movement rationale

Sterling continued to hold momentum, as GBP/USD and GBP/EUR trade near monthly highs due to rising expectations of a rate hike, with consensus expecting this as soon as November the 4th to curb inflation. The currency was supported despite a steady increase in UK Covid cases, rising 15% compared to the previous week. Also, some economic data came in worse than expected, with UK CPI slightly lower at 3.1% in September and Retail Sales data at -0.2% vs consensus expectations of +0.6%. The Pound was relatively unchanged following these releases. In more positive news, the UK signed a trade deal with New Zealand, reducing tariffs and easing business-travel arrangements, although the deal is unlikely to significantly boost UK growth.


Week ahead

A light economic calendar does not include any meaningful data release:


Calendar


US Dollar


The Dollar dipped as risk sentiment improved.


Movements

EURUSD began the week at 1.1587 and moved up during the first part, hitting the highest level of the month at 1.1668. It then consolidated above 1.16 level, closing at 1.1645 (+0.5%).


GBPUSD opened at 1.3739 and traded with a positive bias, breaking the 1.38 level to reach a new 1-month high (1.3830). It then moved back below 1.38 to close with a weekly gain of 0.28% at 1.3777.


Movement rationale

The Dollar posted a second week of declines, with most of the losses triggered on Monday and Tuesday, owing to a combination of risk-on sentiment (which traditionally penalises safe-haven currencies such the Greenback) and negative data. Disappointing Industrial Production figures and slightly worse than expected Quarterly GDP data contributed to the aggressive USD selling at the start of the week. Additionally, bets that other central banks might outpace the Fed in tightening, such as UK, New Zealand and Australia, likely pushed the currency lower. The Dollar managed to stem some losses on Thursday, attempting a recovery on better US jobs and housing data, but this move-up faded on Friday morning, as risk sentiment was boosted on news that Chinese property developer Evergrande Group made an interest payment on a Dollar bond averting a formal default.


Week ahead

The US economic calendar includes the following:


Calendar

Tuesday 3pm | Consumer Confidence (Oct)

Wednesday 1:30pm | Durable Goods Orders (Sep)

Friday 3pm | Michigan Consumer Sentiment Index (Oct)


Euro


The Euro recovered some ground.


Movements

EURUSD began the week at 1.1587 and moved up during the first part, hitting the highest level of the month at 1.1668. It then consolidated above 1.16 level, closing at 1.1645 (+0.5%).


GBPEUR opened at 1.1857 and traded rangebound all week, flirting several times with the highest level since February 2020 (1.1870). It closed slightly lower at 1.1831 (-0.22%).


Movement rationale

After being one of the worst G10 performers over the last few weeks, as global inflation added negative pressure on the single currency, last week the Euro was able to recover (at least partly) some ground against GBP and USD. Despite some negative economic data, with business activity in the Eurozone registering the lowest reading in six months amid persistent global supply chain problems hitting the Euro area, the European currency managed to make gains and recovered from multi-month lows against major rivals.


Week ahead

Investors’ focus will be on ECB meeting this Thursday, with the Eurozone economic calendar this week includes the following:


Calendar

Monday 9am | IFO – Business Climate (Oct)

Wednesday 7am | Gfk Consumer Confidence Survey (Nov)

Thursday 12:45am | ECB Interest Rate Decision, Industrial Confidence (Oct)

Friday 9am | Consumer Price Index (Oct), Gross Domestic Product (Q3)



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