Weekly Forex Review & Outlook 21-Nov-2022: A shift towards USD, New Covid Wave in China, Uncertain GBP and EURO

A review of last week

With the pound having surged over 14% since early November and the euro around 6.5%, this time last week the US dollar was close to three-month lows. But sentiment shifted in favour of the greenback towards the end of the week and into this one.

Adding to the familiar feelings, a core reason had been a softer scoop of US inflation data and some Federal Reserve speakers suggesting it was not yet time for a policy pivot.

Cable topped a three-month high last Tuesday, hitting 1.20 for the first time since this summer, and EUR hit its highest level against USD since July and briefly above its 200-day moving average, as US producer prices followed consumer prices in coming in lower than expected, boosted by solid Empire manufacturing data.

However, a dollop of optimism about China has since melted away with new Covid outbreak in some cities that has resulted in Beijing clamping down with the restrictive measures some thought had been set aside permanently, which has seen added more USD demand.

Focusing on sterling, despite UK consumer inflation topping 11% and a bleak economic outlook in the data release alongside the Autumn Statement, it’s been an overall winner, rising almost everything apart from EUR.

The euro had a largely forgettable week, down over 1% against the pound, US, kiwi and Hong Kong dollars and Russian rouble most (aka Betty!). It did against the Scandinavian crowns and Swiss franc.

The Swissy and SEK were notable losers against various major currencies.

The Week Ahead

It’s a relatively quiet week in terms of macroeconomic data.

For USD and the Fed, the release on Wednesday of minutes from the last Federal Open Market Committee meeting will be pored over and could result in a wobble before the Thanksgiving public holiday a day later.

But if there are no big surprises then the dollar could coast into holiday mode in positive fashion.

Other US data in the week includes, the Richmond Fed survey on Tuesday, mortgage applications, new home sales, Uni of Michigan consumer sentiment survey and durable goods orders on Wednesday along with the above and the usual jobless claims.

After a hair-rising jaunt since September, GBP should now start to settle slightly. But there are still plenty of risks and potential upsides, as growth softens and the Bank of England tightening continues next month.

Data in the coming days includes Wednesday's flash purchasing managers’ index surveys for November, where the composite indicator for the UK is expected to remain below 50 - for the fourth month in a row.

On top of that there will be UK government borrowing figures on Tuesday.

In euro-land there will also be flash PMIs on Wednesday for the entire bloc, Germany and France; along with two important sentiment surveys; the Ifo from Germany and the Courbe Syntethique in Belgium; plus more ECB speakers, German and French inflation on Tuesday and Wednesday; and eurozone unemployment on Friday.

The composite PMIs are expected to be in contraction territory. Other notable events include Japanese inflation figures on Tuesday an interest rate decision from the Reserve Bank of New Zealand early on Wednesday

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