03/10/2024
Written by: Ian Morley
GBP/USD
Summary:
GBP/USD extended its recovery to near 1.3250 following the Federal Reserve’s 50 basis point rate cut. The US Dollar weakened initially, as the Fed’s dovish stance was seen as a signal for further easing, although comments by Fed Chair Jerome Powell tempered some of the downside. The Pound also benefitted from stabilised UK inflation data at 2.2% for August, with elevated services inflation (5.6%) supporting market expectations of the Bank of England holding rates steady at 5.0%.
Outlook:
With the BoE expected to maintain its cautious approach, GBP/USD could experience further volatility. If the BoE hints at prolonged rate stability, the pair may push towards 1.3300. Conversely, any dovish signals, particularly around potential rate cuts, could see a retreat towards the 1.3000 mark. Further Fed rate cuts this year may offer the Pound more room to strengthen.
EUR/GBP
Summary:
EUR/GBP traded defensively, edging lower to around 0.8405 as the Euro came under pressure from dovish comments by ECB policymakers. The Eurozone’s inflation remains stubbornly above the ECB’s target, which reinforces the ECB’s cautious monetary stance. Meanwhile, the Pound was supported by stable UK inflation and expectations that the BoE will leave rates unchanged at 5.0%.
Outlook:
As the BoE holds rates steady and the ECB remains cautious, EUR/GBP may remain range-bound. Any unexpected shift in the BoE’s stance towards a more dovish outlook could see EUR/GBP move higher. On the downside, a break below 0.8400 could occur if the UK economy shows resilience and services inflation pressures persist.
EUR/USD
Summary:
EUR/USD saw heightened volatility following the Fed’s rate cut, initially spiking to near 1.1200 before retracing back to around 1.1150. The Fed’s decision to cut rates by 50 basis points led to broad-based USD weakness, although subsequent remarks by Powell curbed some of the losses. The Euro struggled for momentum due to continued concerns over Eurozone inflation.
Outlook:
EUR/USD may remain volatile as markets digest the Fed’s dovish outlook. If the Fed continues its easing cycle, the pair could push towards 1.1200. However, Eurozone economic headwinds and persistent inflation concerns could limit the Euro’s upside. Key support remains around 1.1000.
AUD/USD
Summary:
The Australian Dollar gained ground, reaching a new 2024 high above 0.6800, driven by a combination of strong domestic employment data and a weaker US Dollar. Australia’s unemployment rate remained steady at 4.2%, while the Fed’s dovish stance pushed AUD/USD higher.
Outlook:
The AUD/USD pair could continue to benefit from a risk-on sentiment, particularly if the Fed remains on its rate-cutting path. A further rise towards 0.6900 is possible if US data continues to underperform. However, China’s economic challenges remain a potential downside risk for the Australian Dollar.
Final Summary:
Currency markets have been dominated by central bank actions, with the Fed’s rate cut and the BoE’s expected hold driving significant movements. The Pound has benefitted from stable inflation data, while the Euro remains under pressure from ECB dovishness. The US Dollar’s outlook hinges on further Fed cuts, creating potential for continued volatility in key currency pairs.