Fed cuts rates as major central banks diverge on policy
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Daily Currency Update
The European Central Bank might not yet have completed a series of rate cuts that began in June 2024, Vice President Luis De Guindos said yesterday. He noted that inflation remains stable at 2% and added that while the risk of inflation falling below the 2% target rate was "not big" he could not rule out another cut in borrowing costs for the Eurozone.The Pound is headed for its biggest two-day drop since early July after figures released showed a surge in UK public borrowing and a Bank of England rate decision that highlighted the difficulties policymakers face when attempting to balance growth vs inflation. Borrowing between April and August this year totalled £83.8 billion pounds which is £11.4 billion more than markets expected.
The dollar strengthened against most currencies this morning after the Fed signalled it is in no rush to cut rates further following this week’s move. Chair Jerome Powell’s comments were less dovish than markets had anticipated, giving the greenback fresh support
Key Movers
ECB President, Christine Lagarde, said the Eurozone economy was in a "good place". She added that the disinflationary process is over, the domestic economy is showing resilience while the labour market is solid and risks are more balanced. She cautioned that the ECB is not on a "pre-determined path" and that economic data will continue to monitored closely.UK Chancellor, Rachel Reeves, risks a "major fiscal issue" if the UK miss their ambitious plans to make the public sector services more efficient underscoring another major challenge ahead of the UK's November budget. Failing to meet these targets will add to the demands on public spending at a time when Reeves is struggling to meet budget targets set in June of this year.
The US Federal Reserve delivered its first rate cut since last December, lowering borrowing costs by 25 basis points. In contrast, the UK and Europe left rates unchanged, highlighting a growing policy divergence among major central banks. Fed officials pointed to continued weakness in the US labour market as the key reason for this week’s move, keeping employment concerns front and centre.
Expected Ranges
- GBP/USD: 1.3470 - 1.3520 ▼
- GBP/EUR: 1.1455 - 1.1505 ▼
- GBP/AUD: 2.0385 - 2.0435 ▼
- EUR/USD: 1.1740 - 1.1790 ▼