Markets remain volatile as we await major interest rate decisions
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Daily Currency Update
The British Pound recovered modestly after a three-day losing streak, rising to around USD 1.3350 and €0.8717. Softer-than-expected UK inflation data fuelled speculation of further Bank of England (BoE) rate cuts, weighing on sentiment earlier in the week. However, stronger-than-forecast retail sales and PMI figures offered a degree of domestic support, though not enough to dispel concerns over the BoE’s policy path and broader fiscal uncertainty.
The euro traded in a tight range above 1.1600 against the dollar as markets awaited upcoming policy decisions from both the European Central Bank (ECB) and the Federal Reserve. A modest improvement in risk sentiment, supported by renewed hopes of progress in U.S.-China trade talks, slightly weighed on the dollar, providing limited support to the euro. However, upside momentum remains capped as ECB officials maintained a cautious tone, noting the eurozone economy is in a “good place,” while highlighting ongoing concerns over inflation risks and currency strength.
The US Dollar Index (DXY) hovered between 98.70 and 98.90, consolidating after recent gains. Softer inflation data — with consumer prices up 3.0% year-on-year, below expectations — has reinforced market expectations of a near-term Fed rate cut, putting mild pressure on the greenback. Even so, safe-haven demand and steady Treasury yields are limiting downside risk, keeping the dollar broadly supported for now.
Key Movers
The euro is expected to remain volatile this week as markets await the ECB’s upcoming rate decision and policy guidance. Any signal suggesting a delay in rate cuts or concern over the euro’s recent strength could lend the currency support. Conversely, a more dovish tone - highlighting easing ahead or downplaying inflation risks - may see the euro drift lower. Broader sentiment will also hinge on U.S. data releases and dollar performance, which could tip the balance either way.
Markets are likely to stay cautious as investors look for further clarity on the Bank of England’s next steps and the UK’s upcoming budget. The pound could find support if incoming data confirms firm domestic demand and the BoE holds off on near-term rate cuts. However, if inflation remains subdued or fiscal concerns deepen, sterling may face renewed pressure. The currency’s direction will also depend on U.S. dollar strength and global risk sentiment.
The U.S. dollar is expected to remain range bound and data-driven in the days ahead. A signal from the Federal Reserve that it may delay rate cuts or end quantitative tightening sooner than expected would likely boost the greenback. In contrast, if inflation continues to ease and the Fed leans toward further monetary easing, the dollar could soften. Broader risk sentiment, ongoing US-China trade developments, and global central bank actions will also shape near-term dollar dynamics.
Expected Ranges
- GBP/USD: 1.3310 - 1.3360 ▲
- GBP/EUR: 1.1415 - 1.1465 ▲
- GBP/AUD: 2.0325 - 2.0375 ▲
- EUR/USD: 1.1635 - 1.1685 ▲