• Audere Research

Weekly FX Outlook October 4th


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GB Pound


Sterling sustained heavy losses during the first half of the week


Movements

GBPUSD opened at 1.3671 and sharply drop to 1.3425 (its lowest level since December last year) mid-week, before retracing slightly during the last trading sessions of the week. It finally closed with a weekly loss of -0.94% at 1.3542.


GBPEUR opened at 1.1669 and after falling sharply on Tuesday it reached 1.1550 on Wednesday (9-week low). It then paired all losses to close unchanged at 1.1675.


Movement rationale

Sterling fell sharply last week, being sold heavily on Tuesday and Wednesday amid rising concerns that higher inflation would undermine UK economic growth. The ongoing energy crisis and growing supply chain problems only made things worse for the Pound which suffered from a risk-off sentiment in global markets. Some support to the currency was offered by better-than-expected economic growth data, with the Q2 GBP revised higher to 5.5%, up from the 4.8% previously estimated, placing the UK economy a lot closer to its pre-Covid size than many economists had thought. This in turn reduced concerns about stagflation risk in the country - where high inflation is associated with poor growth and high unemployment - restoring some confidence in the UK.


Week ahead

The light UK economic data calendar includes the following:


Calendar

Tuesday 8:30am | Markit Services PMI (Sep)


US Dollar


The Dollar was strong.


Movements

EURUSD began the week at 1.1715 and steadily moved down to hit 1.1563 on Thursday (lowest level since July 2020). It then managed to recoup some of the losses to close at 1.1598 (-1%)


GBPUSD opened at 1.3671 and sharply drop until 1.3425 (its lowest level since December last year) mid-week, before retracing slightly during the last two trading sessions of the week. It finally closed with a weekly loss of -0.94% at 1.3542.


Movement rationale

The Dollar rallied last week, reaching a 1-year high on Thursday. Expectations are for a tighter US monetary policy, following Fed Chair Powell’s speech where he stated that inflation is likely to remain elevated in coming months.This prompted a further rise in 10 year Treasury yields (hitting the highest level since March 2020). This in turn triggered a global market sell-off and increased demand for safe haven assets such as short dated USD paper. Also, the interim measure reached to avoid the US government shutdown provided some support. The Greenback retraced slightly on Thursday and Friday, tracking declines in Treasury yields, as investors took profits at month-end. Consumer spending and manufacturing data was upbeat. However, consumer confidence dropped for a third straight month in September, reflecting concerns over the Delta variant and rising inflation.


Week ahead

Investor will focus on US labour data, with the US economic calendar includes the following:


Calendar

Tuesday 2pm | ISM Services PMI(Sep)

Wednesday 12:15pm | ADP Employment Change (Sep)

Thursday 1:30pm | Initial Jobless Claims (Oct 1)

Friday 3pm | Nonfarm Payrolls (Sep), Unemployment Rate (Sep)


Euro


The Euro remains under pressure versus the Dollar.


Movements

EURUSD began the week at 1.1715 and steadily moved down to hit 1.1563 on Thursday (lowest level since July 2020). It then managed to recoup some of the losses to close at 1.1598 (-1%)


GBPEUR opened at 1.1669 and after falling sharply on Tuesday it reached 1.1550 on Wednesday (9-week low). It then paired all losses to close unchanged at 1.1675.


Movement rationale

The Euro plunged against the Dollar in the first half of the week, although not as much as Sterling against which EUR briefly reached a multi-month high on Wednesday. The Euro gave back all gains toward the end of the week as investor sentiment improved. On the data front, inflation in the Euro-zone area accelerated further to 3.4% year on year in September, supported by rising energy prices, and hit a 13-year high. This worsens the ECB headache on handling its monetary policy and timeline for withdrawing its stimulus package, as inflation might be less transitory than estimated by the central bank.


Week ahead

The Eurozone economic calendar this week includes the following:


Calendar

Tuesday 8am | Markit PMI Composite (Sep)

Wednesday 9am | Retail Sales (Aug)


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