03/10/2024
Written by: Ian Morley
GBP/EUR
Summary:
The GBP/EUR pair weakened slightly, hovering around 0.8445 as UK CPI inflation met market expectations at 2.2% year-on-year for August. The Pound gained support from rising core CPI data, which came in higher than anticipated at 3.6%. Meanwhile, the Euro continues to be weighed down by dovish signals from the European Central Bank (ECB), with further rate cuts anticipated.
Outlook:
With the ECB expected to continue cutting rates, the Euro is likely to remain under pressure against the Pound. The UK’s inflation outlook could drive GBP strength if inflationary pressures persist, leading the Bank of England to maintain a more hawkish stance. A break below 0.8400 could be on the cards if UK data remains supportive.
GBP/USD
Summary:
The GBP/USD pair surged to near 1.3200 following higher-than-expected core inflation data from the UK, with core CPI hitting 3.6%. This puts pressure on the Bank of England ahead of its interest rate decision. Meanwhile, the US Dollar remains subdued as markets await the Federal Reserve’s rate decision, with increasing expectations of a significant 50 basis point rate cut.
Outlook:
With the Fed likely to cut rates, the US Dollar may weaken further, allowing GBP/USD to extend gains. Should the Fed announce a larger-than-expected rate cut, the pair could break above the 1.3200 level. Traders will be closely watching the Fed’s future rate guidance, as it could signal further USD softness.
EUR/USD
Summary:
EUR/USD has managed to stabilise above the 1.1100 mark, buoyed by a weaker US Dollar and expectations of a dovish Federal Reserve. The pair has seen minor gains as markets wait for the Fed’s rate decision, which could lead to further USD weakness.
Outlook:
If the Fed opts for a 50 basis point rate cut, the US Dollar could weaken significantly, pushing EUR/USD higher. However, the Euro’s gains may be limited by the ECB’s dovish tone and the prospect of future rate cuts in the Eurozone. Key levels to watch are 1.1200 on the upside and 1.1000 as support.
AUD/USD
Summary:
The Australian Dollar has extended its rally, bolstered by expectations of a dovish Federal Reserve and supportive remarks from the Reserve Bank of Australia. The AUD/USD pair is benefitting from improving risk sentiment, with traders anticipating a bumper Fed rate cut.
Outlook:
If the Fed delivers the widely expected rate cut, risk-sensitive currencies like the AUD could continue to strengthen. The AUD/USD pair may test 0.6500, especially if the Fed signals further easing. However, China’s economic slowdown remains a risk factor that could limit upside for the Australian Dollar.
Final Summary:
The currency market is largely focused on the upcoming Federal Reserve decision, which could lead to significant USD movement depending on the size of the rate cut. While the GBP is seeing strength on the back of higher inflation data, the Euro remains under pressure from the ECB’s dovish tone. The AUD could benefit from a risk-on sentiment, though global economic uncertainties remain a potential headwind.