Moody’s keeps France at Aa3, but outlook remains negative
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Daily Currency Update
In the UK, financial markets are now pricing in an 80% chance that the Bank of England will cut interest rates by 25 basis points this year, following a string of weak labour market data and softer-than-expected inflation figures. Policymakers remain concerned that inflation is proving too persistent, after August’s rate cut passed by a narrow 5–4 vote from the Monetary Policy Committee. Meanwhile, long-term UK inflation expectations edged up slightly to 4.2% in September from 4.1% in August.
Credit rating agency Moody’s announced on Friday that it will maintain France’s Aa3 credit rating but has revised the outlook to negative from stable, citing growing risks from political fragmentation that could hinder efforts to reduce the country’s deficit. The decision to avoid a downgrade will come as a relief to the French government, following recent downgrades by Fitch, DBRS, and S&P Global over the past month.
In the US, consumer prices rose 0.3% in September, slightly below the 0.4% forecast, reinforcing expectations that the Federal Reserve will cut rates by 25 basis points at its upcoming meeting this week. Analysts noted that while prices continue to rise, the pace remains controlled, strengthening the market view that the Fed may lower borrowing costs by a total of 50 basis points before year-end.
Key Movers
France’s Finance Minister Roland Lescure said Moody’s decision “reflects the absolute necessity of building a collective path toward budgetary compromise.” He reaffirmed the government’s determination to meet its 2025 deficit target of 5.4% and to continue on an ambitious path to reduce the deficit below 3% by 2029, while maintaining economic growth. Lescure added that France’s “highly competent public institutions” remain resilient, even as the strength of that framework is being tested by a challenging domestic political environment.
In the UK, Finance Minister Rachel Reeves is expected to raise tens of billions of pounds in new taxes in the November 26th budget to stay on course with fiscal commitments and maintain confidence in the bond market. On a brighter note, UK consumer sentiment climbed to its highest level since August 2024, as shoppers took advantage of major online sales events. The rebound in household optimism will be welcomed by the UK’s embattled government.
In the US, private-sector business activity continued to grow strongly in October, with the Purchasing Managers Index (PMI) rising to 54.8 from 53.9, signalling healthy economic momentum at the start of Q4. However, the Federal Reserve faces additional challenges as it meets this week to set monetary policy amid a prolonged government shutdown, which has suspended the release of key economic data.
Expected Ranges
- GBP/USD: 1.3285 - 1.3335 ▼
- GBP/EUR: 1.1430 - 1.1480 ▼
- GBP/AUD: 2.0355 - 2.0405 ▼
- EUR/USD: 1.1590 - 1.1640 ▼