03/10/2024
Written by: Ian Morley
GBP/USD
Summary:
GBP/USD is trading around 1.3150, benefitting from a weaker US Dollar after the US Producer Price Index (PPI) data showed slower-than-expected inflation, which heightened expectations for a larger rate cut from the Federal Reserve (Fed). The Bank of England (BoE) is expected to maintain its current interest rate in its upcoming meeting, adding strength to the British Pound.
Outlook:
With markets anticipating a 50 bps rate cut by the Fed, further weakening of the US Dollar is likely, which could keep GBP/USD elevated in the short term. Next week, the focus will shift to the UK Consumer Price Index (CPI) data, which could provide new direction for the pair. A higher-than-expected inflation reading may support further BoE hawkishness, providing additional support for the Pound.
EUR/USD
Summary:
EUR/USD is trading below 1.1100, holding steady ahead of key US economic data. The pair has recovered from recent lows due to US Dollar weakness and mixed market sentiment. The European Central Bank (ECB) did not provide specific forward guidance, but comments from policymakers suggest a cautious approach to future rate decisions.
Outlook:
The Fed’s anticipated rate cut next week could continue to pressure the US Dollar, potentially lifting EUR/USD beyond 1.1100. Technically, a break above 1.1155 could open the door for further gains toward the 1.1200 level. However, any surprises in upcoming US economic data or hawkish Fed commentary may stall the rally.
EUR/GBP
Summary:
EUR/GBP is trading around 0.8430, recovering from earlier losses following comments from ECB policymakers. Despite concerns over UK wage growth and flat GDP data, which suggest a weaker UK economic outlook, the Euro has struggled to gain momentum, constrained by uncertainty surrounding ECB rate policy.
Outlook:
EUR/GBP may remain range bound as traders weigh the divergent policy paths of the ECB and BoE. Expectations for UK inflation data next week will be a key driver for the pair. A stronger UK CPI could bolster the Pound, pushing EUR/GBP lower. Meanwhile, ongoing economic data from the Eurozone will shape market sentiment toward the Euro.
GBP/AUD
Summary:
GBP/AUD continues to trade lower as the Australian Dollar strengthens on the back of improved risk sentiment and a weaker US Dollar. Hawkish comments from Reserve Bank of Australia (RBA) officials, combined with easing inflation expectations, have supported the Australian Dollar, while the Pound has faced pressure from subdued UK economic data.
Outlook:
The GBP/AUD pair could face further downside as the market continues to price in a more cautious stance from the BoE compared to the RBA’s firm position on inflation. Key drivers next week will be UK inflation data and any further comments from RBA officials. If UK inflation surprises to the upside, it could help the Pound recover some losses against the Aussie.
AUD/USD
Summary:
AUD/USD is extending its rally, trading higher for the third consecutive session, driven by expectations of an aggressive rate cut by the Fed. The Australian Dollar has also benefitted from a relatively hawkish stance from the RBA, which has maintained its focus on curbing inflation.
Outlook:
The AUD/USD could see continued upside if the Fed delivers a larger-than-expected rate cut next week, which would weaken the US Dollar further. However, a hawkish Fed surprise or better-than-expected US economic data could reverse the current trend. Meanwhile, RBA commentary and Australian economic data will also be closely watched to assess any potential shifts in policy stance.
Final Summary
The major theme in the currency markets remains US Dollar weakness, driven by rising expectations for a sizable Fed rate cut next week. This has benefitted both the Euro and the Pound, though the UK faces some headwinds due to weaker economic data. The Australian Dollar has outperformed as markets expect the RBA to maintain a hawkish stance. Next week, attention will shift to the Fed decision and key inflation data from the UK, which will provide fresh direction for the markets.