03/10/2024
Written by: Ian Morley
GBP/EUR
Summary:
The EUR/GBP pair has fallen below 0.8400, with the Pound Sterling strengthening on the back of upbeat UK Retail Sales data. Retail sales in the UK rose by 1.0% month-over-month in August, exceeding expectations. Meanwhile, the Bank of England (BoE) has opted to maintain its interest rate at 5%, reinforcing support for the Pound. On the Euro side, Germany’s Producer Price Index (PPI) showed a slight increase of 0.2% for August, though it did little to halt the Euro’s decline.
Outlook:
The short-term outlook for GBP/EUR suggests further support for the Pound as the UK economy demonstrates resilience. However, with the European Central Bank (ECB) maintaining a cautious stance, traders will focus on future inflation data from the Eurozone, especially given ECB Vice President de Guindos’ indication of more insight by December. Continued divergence in economic momentum between the UK and Eurozone may keep the pair under pressure.
GBP/USD
Summary:
The Pound Sterling continues to rise against the US Dollar, reaching levels above 1.3300. The US Dollar weakened amid growing expectations of further rate cuts by the Federal Reserve. Meanwhile, the BoE’s decision to maintain rates at 5% has supported the Pound. The Fed’s dovish outlook, combined with concerns about persistent inflation in the UK, has created a favourable environment for GBP/USD gains.
Outlook:
With the Federal Reserve expected to continue easing rates in the coming months, GBP/USD may see further upside. Attention will be on upcoming S&P Global PMI data for September, which could influence the pair’s movement. If US economic data continues to weaken, further Dollar losses are likely, allowing GBP to maintain its strength.
EUR/USD
Summary:
EUR/USD has risen toward 1.1200, driven by US Dollar weakness and renewed optimism in the market. The Euro has benefitted from the Federal Reserve’s dovish stance, while risk sentiment has pressured the US Dollar. Comments from ECB officials have been mixed, with some policymakers signalling caution about inflation prospects in the Eurozone.
Outlook:
EUR/USD is expected to continue its upward momentum as long as the US Dollar remains under pressure. With markets pricing in further rate cuts from the Fed, the Euro may gain additional support. However, ECB policymaking uncertainty may limit Euro gains, with traders awaiting clearer guidance from ECB President Lagarde’s upcoming speeches.
AUD/USD
Summary:
The Australian Dollar has extended gains against the US Dollar, supported by stronger-than-expected employment data and expectations of further rate cuts by the Federal Reserve. The Reserve Bank of Australia (RBA) has maintained its hawkish stance, contrasting with the Fed’s dovish policy moves.
Outlook:
The divergence in policy between the RBA and the Fed could see AUD/USD continue to appreciate. With China’s economy showing signs of weakness, developments there will play a crucial role in influencing the Australian Dollar. Traders will also be watching for further signs of US economic slowdown, which could reinforce the Aussie’s gains.
USD/JPY
Summary:
USD/JPY has remained relatively stable, trading slightly above 142.00 following the Bank of Japan’s (BoJ) decision to maintain its short-term interest rate. The BoJ’s cautious stance contrasts with the Federal Reserve’s rate cuts, though the weakening US Dollar has limited the pair’s upward momentum.
Outlook:
The BoJ’s commitment to its current policy stance could lead to further Dollar weakness against the Yen, especially as the Fed continues its rate-cutting cycle. A sharper slowdown in the US economy may result in additional downside for USD/JPY, but for now, the pair is likely to remain range bound.
Final Summary
The currency markets are being shaped by contrasting monetary policies across major economies. The Federal Reserve’s dovish outlook has weakened the US Dollar across the board, while strong UK economic data has bolstered the Pound. The Euro and Australian Dollar are benefiting from favourable market conditions, while the Japanese Yen remains steady amid the BoJ’s cautious approach. The key drivers going forward will be further central bank decisions and critical economic data releases, particularly from the US and Europe.