Markets calm ahead of France’s expected PM appointment
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Daily Currency Update
EUR weakness was observed through this week on the back of political turmoil in France and weaker than expected trade figures from Germany, as August data offered a surprise contraction in exports. The weaker German trade data follow Wednesday’s disappointing industrial production print, suggesting a softening in the euro area’s economic outlook. Yield spreads are steady however, and comments from the ECB remain neutral.
Sterling remained soft, reflecting market expectations of a potential Bank of England rate cut later this year. Comments from BoE policymaker Swati Dhingra, emphasized slowing domestic demand and weak hiring intentions, reinforcing a cautious tone. Market participants are closely watching housing-related data, with the Halifax House Price Index indicating softening in the property market.
The three-week-long rally in the US Dollar faced slight selling pressure after the release of the Federal Open Market Committee (FOMC) minutes on Thursday of the September policy meeting, which stated that officials were confident about adjusting interest rates on the downside amid growing labour market risks. On inflation, policymakers expressed relief, stating that upside risks to price pressures have either diminished or not increased.
Key Movers
Investors digested the European Central Bank’s (ECB) Monetary Policy Meeting Accounts from the September 10–11 meeting, which showed policymakers confident that interest rates are in a “good place” to guide inflation sustainably back to target. Officials noted that while inflation continues to ease, service prices remain sticky and wage growth is still elevated, though on a gradual downtrend. France’s political situation remains uncertain and President Macron has stated his intention to name a new Prime Minister by Friday evening. The France-Germany 10Y spread is narrowing and appears to be signalling confidence in President Macron’s ability to form a new cabinet ahead of the October 13 budget deadline.
The UK government is highly concerned about limiting the overall spending to respect its own fiscal rules, which it laid down in budget announced in 2024. Financial market participants expect the Treasury to cut public spending or raise taxes, or a combination of both, to limit ballooning fiscal borrowings. In July, concerns over UK fiscal debt escalated after Chancellor of the Exchequer Rachel Reeves announced an increase in welfare spending.
Bank of New York President John Williams said he supports further interest rate cuts this year. He added that, " the slowdown in monthly jobs growth, coupled with other signs that companies are more hesitant to hire, warrants attention. In terms of inflation, his view is that the tariffs have increased imported goods prices and that the Fed had flexibility to shore up labor market because inflation outlook did not appear as dire as it did earlier in the year."
Expected Ranges
- GBP/USD: 1.3260 - 1.3310 ▼
- GBP/EUR: 1.1460 - 1.1510 ▼
- GBP/AUD: 2.0265 - 2.0315 ▼
- EUR/USD: 1.1545 - 1.1595 ▼