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Market predictions and forex forecasts for the week of 9 May 2022.
Week starting 09-05-2022
We have excluded the Russian Ruble from the analysis in our report due to the extreme volatility associated with the currency.
- The US Dollar maintained its rally against most of its peers, strengthening against 16 of its top 19 currency pairs. The most notable moves to the downside were against the Mozambican Metical (MZN) (-1.32%) and the AUD (-0.16%), while the largest upside moves were against the Swedish Krona (SEK) (2.68%) and the Brazilian Real (BRL) (2.23%).
- The main event from last week was the US Fed interest rate decision, where Fed chair Jerome Powell raised the US interest rates by 0.5% to 1%. This was fully anticipated by the market, and the USD was sold off immediately post the announcement. This was one of those “buy the rumor, sell the fact” moments, where the market would have liked an even higher than anticipated move. Although there was a rapid downside movement for the USD, this was quickly reversed in subsequent days and the USD has maintained its upward trajectory. Following this, the US nonfarm payrolls data was released on Friday, where the US added more jobs than anticipated. This helped the USD as it held off fears of stagflation, characterised by high inflation and low job growth.
- This week, analysts will monitor to see if this major strengthening trend in the USD holds. US inflation data will be released on Wednesday, and it is expected to taper down. If it moves higher, this would be problematic for the USD.
- The Euro had a very good week, strengthening against all but one of the top 19 pairs we monitor. The Euro only weakened against the Mexican Peso (MXN) (-1.30%) whilst the currency strengthened most significantly against the BRL (2.32%) and the GBP (1.70%).
- The EU backtracked some of its commitment timeframes to stop buying Russian oil, making this less of a damper on the EU growth prospects, which helped the EUR in the short term. The EA unemployment rate dropped, which is a positive sign, especially since the area is facing some inflation headwinds.
- There is no important data out of the Euro area this week, but the geopolitical risks related to the Russian invasion of Ukraine remain a major concern for the area and world. The fallout from the invasion is impacting all facets of globalisation and thus the whole world faces extreme risks with the possibility of this conflict escalating.
- The GBP had a terrible week, weakening against all but one of the 19 pairs we monitor. The Pound only strengthened against the BRL (0.3%), while weakening the most against the MXN (-3.19%) and the AUD (-2.71%).
- Despite the Bank of England (BoE) raising interest rates, the market was disappointed with the 25-basis point hike. The pace of rate hiking between the UK and US is now diverging and so the market sold off the GBP.
- This week’s main event is the UK’s GDP growth data. Although it is still positive, it is expected to moderate on a quarter-on-quarter basis. If the growth is higher than expected, it will be GBP positive.
- The South African Rand took another hit last week and weakened against all but three of the top 19 currency pairs. The two most notable, albeit small, gains were made against the BRL (1.19%) and the GBP (0.7%), while the largest declines were against the MXN (-3.34%) and the USD (-2.09%).
- With South Africa still facing loadshedding and declines in the gold price, the ZAR is under extreme pressure after months of strength. This move to the upside is coupled with the “risk-off” shift that we are currently seeing in the global market. There was no significant data out of South Africa last week.
- The only major data event this week is the mining production for March, which is expected to increase due to the jump in metals prices during this period. Analysts will also watch to see if the ZAR continues its weakening trend, and how far it might run.
- Like the Euro, the Australian Dollar had a great week and strengthened against all but one of the top 19 currency pairs. Again, the only the currency to gain ground against the AUD was the MXN (-1.15%) whilst the AUD gained the most against the BRL (2.53%) and the GBP (2.09%).
- Last week, the RBA raised interest rates by 25bps instead of the 15bps expected by markets. This resulted in a solid uptick in the AUD over the short term.
- This week, the main event is the retail sales data, which will be released on Tuesday. This is expected to moderate slightly to 1.6%. We suggest that you should keep a close eye on any developments in China, since they have maintained their Covid zero approach, and this is significantly affecting global supply chains and trade.
- The New Zealand Dollar had a mixed performance, strengthening against eight of the top 19 currency pairs. The largest gains were against the GBP (1.09%) and the Swiss Franc (CHF) (0.76%), whilst the most notable losses were against the MXN (-2.11%) and the AUD (-1.0%).
- The most notable event from New Zealand last week was the RBNZ press conference. Since China is a major purchaser of milk from New Zealand, these aforementioned lockdowns in China are a drag on the economy as trade is drying up to a certain degree.
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