Budget still swaying the Pound
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Daily Currency Update
Euro area annual inflation rose to 2.0%, up from 1.7%, according to a Eurostat flash estimate. The increase was driven by higher costs in services and food, alcohol, and tobacco. In the U.S., core personal consumption expenditures, the preferred measure of underlying inflation, saw its largest monthly rise since April, increasing by 0.3% in September and 2.7% year-over-year, per the Bureau of Economic Analysis. This data supports a slower pace of interest rate cuts after last month's more significant reduction.U.S. employment figures showed initial jobless claims fell from 228,000 to 216,000, with continuing claims down to 1,862,000 from 1,888,000, though still trending upward.
The GBP/USD initially dipped from just under 1.3000 to 1.2850 after the U.S. data release but has since rebounded to above 1.2900. GBP/EUR mirrored this trend, sliding from over 1.1950 to just below 1.1850, now trading near 1.1900. Following the UK budget announcement on Wednesday, a selloff in UK government bonds raised two-year gilt yields by over 20 basis points to their highest since May, weighing on Sterling. Meanwhile, EUR/USD experienced choppy but contained movement, remaining just under 1.0900.
Key Movers
It has been a busy week for FX markets, and next week is likely to be similar. On Tuesday, the U.S. presidential election will decide between Republican Donald Trump and Democrat Kamala Harris as President Biden’s successor. Trump, currently favored by bookmakers, is expected to support policies that keep inflation elevated, prompting the Fed to slow down its pace of rate cuts.On Thursday, the Bank of England will announce its interest rate decision, with markets pricing in a 25-basis-point cut. The U.S. will also release its latest interest rate update on the same day. Continued volatility is expected across FX markets, with recent ranges for U.S. currency pairs likely to be tested.
Expected Ranges
- GBP/USD: 1.2850 - 1.2970 ▼
- GBP/EUR: 1.1840 - 1.1920 ▼
- GBP/AUD: 1.9580 - 1.9760 ▼
- EUR/USD: 1.0840 - 1.0890 ▲