Fed cuts rates by 25bps – signals no guarantee of December move
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Daily Currency Update
The pound remains under pressure ahead of Chancellor Reeves’ upcoming budget. The Office for Budget Responsibility (OBR) warned that the UK faces a £20 billion fiscal shortfall, citing sluggish productivity and limited economic momentum. The report has fuelled speculation that Reeves may be forced to raise income taxes to stabilise public finances - a move markets fear could tighten household spending and slow the UK’s fragile recovery.
The euro gained modest support yesterday despite weak German economic data. The latest consumer confidence index fell to -24.1, down from -22.1 in September. Nevertheless, the single currency benefited from a mildly risk-off tone, as investors favoured the relative stability of the euro over more risk-sensitive currencies such as the pound.
In the US, Federal Reserve officials are striking a cautious tone, noting that the economic picture is unusually unclear. Key indicators - particularly labour market and inflation data - have been disrupted by the government shutdown, leaving policymakers “in a fog.” Some Fed members favour more aggressive easing if growth falters, while others remain focused on inflation risks and prefer a gradual approach to policy adjustments.
Key Movers
ECB Board Members Frank Elderson and Anneli Tuominen are set to speak in Florence, Italy, on Monday. In the meantime, the ECB has entered its quiet period ahead of today’s monetary policy meeting. Markets widely expect no rate cut this week, with speculation suggesting the central bank will withhold new guidance until after the rate decision.
Following recent softness in UK wage and inflation data, investors expect a cautious tone from the Bank of England. This leaves the pound exposed to downside risk if upcoming data disappoints or if policy guidance hints at easing. Markets will remain sensitive to upcoming UK releases - including inflation, wage growth, and trade figures — that could reshape expectations for BoE policy.
The Federal Reserve cut interest rates by 25 basis points, bringing the benchmark range to 3.75%–4.00%, with a 10–2 vote in favour. The Fed also announced it will end its balance sheet reduction (quantitative tightening) on December 1. At the press conference, Chair Jerome Powell stressed that another December rate cut is “far from a foregone conclusion.” The U.S. dollar strengthened more than 1%, reaching 1.1565 against the euro following his remarks.
Expected Ranges
- GBP/USD: 1.3160 - 1.3210 ▼
- GBP/EUR: 1.1335 - 1.1385 ▼
- GBP/AUD: 2.0030 - 2.0080 ▼
- EUR/USD: 1.1590 - 1.1640 ▼