Middle Eastern Tensions Keep Dollar Strong, U.S. Inflation Data in Focus This Week
GBP
GBP/USD has fallen this week and is currently trading at 1.3115 (interbank), while GBP/EUR is at 1.1960 (interbank).
Last week, Bank of England Governor Andrew Bailey suggested that the BoE could take a more "aggressive" approach to cutting interest rates if inflation continues to improve.
However, BoE Chief Economist Huw Pill stated that the central bank should proceed more gradually with rate reductions. Financial markets are divided over whether the BoE will follow a rate cut in November with another in December, noting that consecutive rate cuts have not occurred since 2020.
The monthly Gross Domestic Product (GDP) data for August, released this week, will be closely watched, especially as the British economy has stalled for two consecutive months, raising concerns of slowing momentum. A further slowdown may prompt the BoE to speed up its easing measures.
Today’s Events (GMT+1):
07:00 - Halifax House Price Index (Sep) - Actual: 4.7% vs Forecast: 4.3%
EUR
EUR/USD has declined and is currently trading at 1.0968 (interbank), dipping below the key 1.1000 level.
This morning, German factory orders saw a sharper-than-expected decline in August, falling by 5.8%, the steepest drop in seven months, following a revised 3.9% gain in July.
Economic data for the eurozone is expected to be light this week, meaning that external factors are likely to influence market movements more significantly.
The most important event will be the release of the ECB’s September meeting minutes, which may provide insight into how quickly the central bank plans to continue cutting interest rates.
Following two 0.25% rate cuts in June and September, analysts expect another rate reduction in October, especially with inflation cooling more than expected in September.
Today’s Events (GMT+1):
07:00 - German Factory Orders (MoM) (Aug) - Actual: -5.8% vs Forecast: -1.9%
09:00 - ECB's Lane Speaks
USD
The Dollar Index, which measures the U.S. dollar against a basket of six major currencies, is currently at 102.50, following strong gains last week, particularly after Friday’s payrolls data.
The report eased fears of an economic slowdown in the U.S., with over 250,000 new nonfarm jobs added last month, the unemployment rate falling to 4.1%, and wages growing faster than expected both monthly and annually.
As a result, traders largely dismissed the possibility of a 50-basis-point cut in November, with over a 90% chance of a 25-basis-point cut priced in.
This week, the U.S. Consumer Price Index (CPI) for September will be a key focus, marking the first inflation release since the Fed’s large 0.5% rate cut in September. Analysts expect inflation to slow further to 2.3%, bringing it closer to the Fed’s 2% target.
Today’s Events (GMT+1):
18:00 - FOMC Member Bowman Speaks
18:50 - FOMC Member Kashkari Speaks
23:00 - FOMC Member Bostic Speaks
CAD
USD/CAD is trading higher at 1.3585 (interbank).
Last week saw limited data from Canada, and the focus this week will be on Friday when Canada releases its labour force data for September.
In August, the Canadian economy added 22,000 jobs, although the unemployment rate rose by 0.2 percentage points to 6.6%.
The Bank of Canada will also release its business outlook survey and the Canadian consumer expectations survey on Friday.
The central bank reduced its key interest rate last month to 4.25% and is expected to cut it further.
Moreover, oil prices have retreated this morning, pulling back after Middle East tensions caused their biggest weekly gain in over a year. Brent crude is currently at $78.50 a barrel, while West Texas Intermediate crude futures is currently at $74.96 a barrel.
No significant events are scheduled for today.
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