03/10/2024
Written by: Ian Morley
GBP/EUR
Summary:
Pound Sterling faces downward pressure as Bank of England (BoE) policymaker Megan Greene hinted at the possibility of additional interest rate cuts. Despite prices moving in the right direction, there is still concern about inflation risks in the UK. Meanwhile, the Euro has seen support against the Pound due to easing inflation in the Eurozone, with the Harmonized Index of Consumer Prices (HICP) falling to 1.8% in September, below the European Central Bank’s (ECB) target. However, geopolitical tensions in the Middle East have weighed on risk-sensitive assets like the Euro.
Outlook:
The outlook for the GBP/EUR pair remains cautious. While the BoE may continue with a dovish stance, the Eurozone is also dealing with its own challenges, including weaker inflation. With potential rate cuts on the horizon for both currencies, the balance of power between the two remains uncertain. The geopolitical environment, particularly any escalation in the Middle East, could further influence market sentiment.
EUR/USD
Summary:
EUR/USD has been treading water above the 1.1050 level amid a cautious market. Recent US economic data has been softer than expected, with the US ISM Manufacturing PMI remaining flat at 47.2 in September. Meanwhile, the Eurozone’s inflation rates have also dropped, providing some relief to the ECB. Market participants are closely watching the upcoming US ADP employment data and Federal Reserve (Fed) communications for further direction.
Outlook:
EUR/USD pair may see some volatility as traders await further economic reports, especially the US Nonfarm Payrolls on Friday. The potential for further Fed rate cuts may provide temporary support to the Euro. However, geopolitical risks, particularly the situation in the Middle East, could bolster the US Dollar as a safe-haven currency, limiting Euro gains.
GBP/USD
Summary:
GBP/USD pair declined sharply, reaching its lowest level since mid-September. This came as the Bank of England’s dovish tone reinforced expectations of rate cuts. Meanwhile, the US Dollar continues to hold strength following weaker-than-expected manufacturing data and renewed focus on employment data.
Outlook:
As market sentiment leans towards further rate cuts by both central banks, the US Dollar could maintain its edge over the Pound. While UK inflation is easing, potential growth risks and geopolitical tensions in the Middle East may weigh on the GBP/USD pair, pushing it lower in the short term.
AUD/USD
Summary:
The Australian Dollar is holding gains despite a cautious US Dollar. The Reserve Bank of Australia (RBA) is expected to maintain its hawkish policy stance, providing support to the AUD. The US Dollar, however, is benefitting from its safe-haven appeal as geopolitical tensions in the Middle East rise.
Outlook:
AUD/USD pair is likely to see moderate gains in the near term, supported by RBA’s hawkishness and stimulus measures from China, Australia’s largest trading partner. However, the strengthening US Dollar and uncertainty in global markets, particularly due to the situation in the Middle East, could limit AUD upside potential.
Final Summary
Across major currency pairs, central banks are maintaining a delicate balance between controlling inflation and supporting growth. The potential for additional rate cuts from the Bank of England and the ECB introduces an element of uncertainty for the GBP and EUR. Meanwhile, the USD remains strong amid geopolitical tensions and focus on key employment data. Clients should remain attentive to further developments in economic data and global events, especially in the Middle East, which may drive further currency volatility.