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Weekly FX Outlook September 21st



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GB Pound

Sterling had a relatively volatile week.

Movements

GBPUSD opened at 1.2858 and moved higher the first half of the week to briefly trade up to 1.30 on Wednesday. It then retraced slightly to close the week little changed at 1.2882 (+ 0.19%).

GBPEUR opened at 1.0840 and rose the first half of the week to briefly trade up to 1.10 on Thursday. It then gave back some gains to close the week with a modest appreciation of 0.5% at 1.0894.

Movement rationale

Brexit uncertainty continues to be the driving force of the currency, with Sterling initially moving higher as some reports shown some willingness from the UK Government to accept concessions over the controversial Internal Markets Bill, helping to push GBP higher and recovering some grounds versus major currencies. The BoE followed the FED in keeping rates unchanged (at 0.1%) although signalling negative rates could become a reality, triggering some currency depreciation. GBP found some support in comments from EU Commission President, affirming she is still convinced that a trade deal can be done, although stressing that time is short. On the data front, inflation for August dropped as expected, at -0.4% mainly due to the Government’s eat out scheme.

Week ahead

GBP is expected to be driven by Brexit headlines as the October deadline to wrap up negotiations nears, with the following events having the potential to influence the markets:

Calendar

Tuesday 8am | BoE's Governor Bailey speech

Wednesday 9:30am | Markit Services PMI (Sep), Markit Manufacturing PMI (Sep)

US Dollar

The US Dollar had a mixed week.

Movements

EURUSD had another mixed week, opening at 1.1861 and once again initially trading lower (1.1740), before reversing the movement and erasing most of the losses to close little changed at 1.0830, (-0.26%).

GBPUSD opened at 1.2858 and moved higher the first half of the week to briefly trade up to 1.30 on Wednesday. It then retraced slightly to close the week little changed at 1.2882 (+ 0.19%).

Movement rationale

After a relatively calm start of the week, the Dollar rose on Wednesday as the FED upgraded forecasts for GDP growth (contraction of 3.7% vs 6.5% previously expected). The FED also signalled no rate hikes until 2024 earliest, and until inflation is on track to ‘moderately exceed’ the 2% target. The FED however failed to offer any details on further stimulus measures despite expressing concern on the outlook. Wednesday’s positive USD movement was short-lived, as the Greenback came under pressure on Thursday due to downbeat US data regarding weekly jobless claims and housing. On the other hand, consumer sentiment index rose in September, showing the highest level since March.

Week ahead

USD is expected to have a relatively volatile week ahead, with the following main events having the potential to influence the markets:

Calendar

Tuesday 3pm | Fed's Chair Powell speech

Wednesday 2:45pm | Markit Services PMI (Sep), Markit Manufacturing PMI (Sep)

Thursday 1:30pm | Initial Jobless Claims (Sep 18)

Friday 1:30pm | Durable Goods Orders (Aug)


Euro

The Euro had a relatively flat week.

Movements

EURUSD had another mixed week, opening at 1.1861 and once again initially trading lower (1.1740), before reversing the movement and erasing most of the losses to close little changed at 1.0830, (-0.26%).

GBPEUR opened at 1.0840 and moved higher the first half of the week to briefly trade up to 1.10 on Thursday. It then partly retraced to close the week with a modest appreciation of 0.5% at 1.0894.

Movement rationale

The European currency remained well supported last week, although it failed to break new highs versus the Dollar and Sterling. Increasing concerns about a second COVID wave is weighing on the currency, with Europe reporting 300,000 new infections last week – the most significant weekly rise ever (including the first spike in spring) according to WHO. On the economic front, as recovery continues Eurozone industrial production grew 4.1%, while economic sentiment rose to its highest level in 16 years, providing some support on the Euro.

Week ahead

The Eurozone economic data calendar includes the following:

Calendar

Monday 1:45pm | ECB's President Lagarde speech

Tuesday 3pm | Consumer Confidence (Sep)

Wednesday 9am | Markit PMI Composite (Sep), Markit Manufacturing PMI (Sep)

Thursday-Friday| EU Leaders Special Summit


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