Market Insight 05-11-2024

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  • Market Insight 05-11-2024

GBP/EUR

  • Summary: The Pound remains steady against the Euro, with markets anticipating the Bank of England’s (BoE) decision to potentially cut interest rates by 25 basis points. Recent UK budget announcements are seen as growth-positive but potentially inflationary, which may impact the BoE’s monetary policy approach. In the Eurozone, recent positive inflation and GDP data reduce pressure on the European Central Bank (ECB) to make any significant rate cuts soon.
  • Outlook: Should the BoE proceed with a rate cut, this could exert downward pressure on the Pound against the Euro. Any future indications from the BoE towards additional monetary easing would likely reinforce this trend, while the ECB’s moderate stance is expected to provide relative stability for the Euro. Overall, GBP/EUR may remain in a narrow range in the near term.

GBP/USD

  • Summary: The Pound has gained against the US Dollar, buoyed by expectations of US election results and anticipated interest rate cuts from both the Federal Reserve (Fed) and BoE. Poll results suggesting a closer race in the US election have added a layer of volatility, with the Fed widely expected to reduce rates by 25 basis points as well.
  • Outlook: In the short term, US election outcomes will likely shape GBP/USD movements. A Harris win could prove USD-negative, whereas a Trump win might support the Dollar, though this could bring inflationary risks tied to potential tariff policies. Fed rate cuts are anticipated to put additional pressure on the USD, which could result in Pound strength if the BoE signals a more measured approach.

EUR/USD

  • Summary: The Euro has held its gains against the US Dollar, influenced by expectations of a relatively dovish Fed and the upcoming US election. Positive recent polling results for Harris have supported a mild EUR/USD rally. European leaders are closely watching for any indications of new US protectionist policies under a potential Trump win, which could impact the Euro’s strength.
  • Outlook: The outcome of the US election will likely dominate the EUR/USD pair’s short-term direction. If the ECB adheres to its current plan for a modest 25 bps rate cut, the Euro may continue to outperform. Should the election remain contested, USD volatility is likely to persist, which could further strengthen the Euro in the near term.

AUD/USD

  • Summary: The Australian Dollar has remained resilient after the Reserve Bank of Australia (RBA) decided to keep rates steady, buoyed by positive domestic economic data. As the US election unfolds, AUD/USD remains volatile, with both the RBA’s steady policy stance and recent Chinese economic data supporting the Australian Dollar.
  • Outlook: The RBA’s stable monetary approach indicates limited downside risks for the AUD, particularly against a USD that could face pressure from an anticipated Fed rate cut. A clear US election result could provide a clearer direction for AUD/USD, while ongoing election uncertainty may support the AUD against a weaker Dollar.

Final Summary

As central bank decisions approach and the US presidential election takes centre stage, the currency market is set for heightened volatility. The Fed and BoE are likely to cut rates, and the election outcome may bring significant short-term fluctuations, particularly in GBP/USD and EUR/USD. Central banks are expected to maintain a cautious approach as inflationary and political pressures unfold.