06/12/2024
Written by: Ian Morley
GBP/EUR
Summary
The British Pound found some stability following the recent gilt market sell-off, which saw yields fall on Friday as markets processed the Autumn Budget’s impact. The Pound regained some lost ground ahead of this week’s Bank of England (BoE) meeting, where policymakers are expected to consider a 25 basis point rate cut. Notably, the Bank’s decision will follow last week’s £40 billion tax package, with markets eagerly anticipating Governor Bailey’s guidance on future policy and inflationary trends.
Outlook
If the BoE delivers a rate cut as anticipated, the Pound could face additional pressure against the Euro. However, any dovish signals from the European Central Bank (ECB) may support a more balanced pairing. With the UK government’s budget aimed at stimulating public spending, investor focus will remain on the BoE’s assessment of these measures’ potential inflationary impact. GBP/EUR movement this week will hinge on BoE’s tone regarding future policy and the Eurozone’s economic health.
GBP/USD
Summary
Sterling rose near 1.3000 against the US Dollar as the latter weakened ahead of the US presidential election. Political tensions have led to fluctuations in the US Dollar Index (DXY), which slid to a two-week low. Sterling gains also follow the US non-farm payroll report, which revealed an increase of just 12,000 jobs in October. This muted growth, partly attributed to recent hurricanes, contrasts with a surprising rise in month-over-month hourly earnings, which briefly bolstered the USD.
Outlook
The upcoming BoE meeting could signal further rate cuts and impact the Pound’s resilience against the Dollar. Meanwhile, the US election outcome on Tuesday is likely to create market volatility, with a Trump victory expected to support the Dollar through protectionist policies, while a Harris win could spark USD weakness. A 25-basis-point rate cut by the Fed, if coupled with guidance on future monetary easing, could also influence GBP/USD’s direction. Key support and resistance levels at 1.2900 and 1.3000, respectively, remain focal points for traders.
EUR/USD
Summary
The Euro gained momentum against the US Dollar, approaching 1.0900 as the US Dollar saw selling pressure leading into the election. Recent Eurozone data, including improved Gross Domestic Product (GDP) and Manufacturing PMI figures, have reduced expectations for aggressive ECB rate cuts in December. Improved investor confidence in the Eurozone, though still in negative territory, reflects some resilience in the bloc’s economic outlook.
Outlook
As the ECB moves toward a cautious approach on rate cuts, the Euro may find support against the USD, particularly if the Fed signals ongoing rate easing. This week’s Fed decision will be crucial, with markets anticipating a 25-basis point cut. The presidential election’s outcome, especially if it disrupts current economic policies, could drive further EUR/USD shifts. Near-term, the pair’s ability to maintain levels above 1.0900 may hinge on ECB commentary and US election developments.
AUD/USD
Summary
The Australian Dollar has shown strength against the US Dollar as traders anticipate a stable cash rate from the Reserve Bank of Australia (RBA) this week. Australian inflation data, as indicated by the TD-MI Inflation Gauge, rose in October, which has supported a more hawkish outlook for the RBA. The pair has benefited from USD weakness in the face of election uncertainty and the weak October payroll report.
Outlook
With no rate cut expected from the RBA, the Australian Dollar could retain support if inflation data sustains current levels. Meanwhile, the USD’s movements will be closely tied to the US election and Fed rate decision, both of which could create volatility for AUD/USD. Safe-haven flows to the USD may offer resistance near 0.6700, with support around the 0.6500 level if broader risk sentiment wavers.
Final Summary
In a pivotal week, currency markets face increased volatility amid key rate decisions from the BoE, Fed, and RBA, and the US presidential election. GBP is closely watched ahead of the BoE’s policy shift, while the USD’s direction will largely depend on election results and Fed guidance. The Euro may benefit from stable Eurozone economic indicators, and the Australian Dollar holds steady with no expected RBA rate cuts. Expect fluctuations as markets respond to political and economic developments across these currencies.