03/10/2024
Written by: Ian Morley
GBP/EUR
Summary:
The EUR/GBP pair traded steadily around 0.8420. The European Central Bank (ECB) recently cut its key deposit rate to 3.5%, with further reductions expected. The Bank of England (BoE), however, is anticipated to maintain its interest rate at 5.0%, amid inflation data due for release this week. Investors are awaiting UK and Eurozone inflation data for further direction.
Outlook:
The Euro may face downward pressure if Eurozone inflation remains unchanged, as anticipated. The BoE’s decision to keep rates unchanged could provide stability for the GBP, but cooling wage growth may prompt future cuts, possibly in November. Inflation data mid-week will offer critical insight into the next moves of both central banks.
EUR/USD
Summary:
EUR/USD is trading below 1.1150 as traders prepare for the US Federal Reserve’s (Fed) two-day policy meeting. Despite the ECB’s recent interest rate cut, the Euro remains weak against the USD, which has seen modest gains ahead of the release of US retail sales data and the Fed’s potential policy decisions.
Outlook:
A larger-than-expected rate cut from the Fed could strengthen the Euro, especially if US inflation softens. Conversely, stronger US economic data could provide tailwinds for the USD, pushing EUR/USD lower. Eurozone inflation data on Wednesday could provide some upside for the Euro if it exceeds expectations.
AUD/USD
Summary:
AUD/USD has risen to a two-week high, benefiting from speculation around a 50 basis point cut by the Fed. Positive sentiment in global markets has also helped buoy the Australian dollar, although concerns about China’s economic slowdown are tempering enthusiasm.
Outlook:
While the Fed’s potential aggressive rate cuts could support the Aussie, uncertainties surrounding China’s economy could limit further gains. If China’s economic outlook deteriorates further, the AUD may face downward pressure despite its resilience due to the Reserve Bank of Australia’s hawkish outlook.
GBP/USD
Summary:
The GBP/USD pair hovered near 1.3200, with investors expecting the BoE to hold rates at 5%. Speculation of a significant Fed rate cut is putting downward pressure on the USD, giving the pound room to hold gains ahead of UK inflation data.
Outlook:
Should UK inflation come in higher than expected, the GBP could strengthen further. However, if the Fed delivers a larger-than-expected rate cut, the USD may weaken, benefiting the GBP/USD pair. Investors will be closely watching both the Fed’s and BoE’s policy announcements.
Final Summary
This week’s focus is on key inflation data from the Eurozone, UK, and the US, alongside policy decisions from the BoE and Fed. The potential for aggressive rate cuts by the Fed could weaken the US dollar, offering support to other major currencies like the Euro and the pound. However, with inflation remaining a concern globally, central banks are expected to proceed cautiously in their policy adjustments. Keep a close eye on mid-week data releases for clearer signals on market directions.