Market overview
Currency markets are entering November with nerves exposed and plenty at stake. Stubborn inflation, diverging central bank policies and fresh doubts over the technology rally are keeping investors on their toes. Sterling is gaining momentum, the euro is battling mounting fiscal pressures and the dollar is struggling to turn strong economic data into meaningful gains. With risk appetite shifting rapidly, traders are finding that market sentiment is increasingly calling the shots.
The coming days could prove decisive. US midterm elections, a Bank of England interest rate decision and crucial eurozone inflation figures are all set to test market confidence. Hopes of renewed US-Iran diplomacy and softer oil prices have offered some relief following last week's equity sell-off, but concerns over AI valuations continue to cast a shadow. With several major catalysts approaching, currency markets could be heading for a volatile week.
USD: Strong fundamentals fail to ignite the dollar
The dollar ended last week broadly unchanged despite a cautiously hawkish Federal Reserve meeting and stronger-than-expected US economic data. Robust third-quarter GDP growth and elevated PCE inflation reinforced the case for further tightening, yet short-term interest rate expectations softened, with the two-year OIS curve falling approximately eight basis points.
Instead, concerns surrounding stretched technology valuations and the sustainability of the AI investment boom have weighed on sentiment. Even strong corporate earnings have struggled to satisfy increasingly demanding investors. With the US midterm elections approaching, the prospect of greater Democratic influence and tighter AI regulation could add further pressure.
The dollar index continues to trade around its 21-day moving average, with resistance near 102.50 and initial support at 101.20 to 101.30. Although near-term momentum has weakened, the broader bullish outlook remains supported by restrictive monetary policy, geopolitical uncertainty and elevated energy risks. Any further decline may therefore represent a temporary correction rather than a sustained reversal.
GBP: Sterling builds momentum ahead of BoE decision
Sterling enters November on a positive footing, having gained more than 1% against the dollar and 2.5% against the euro during October. A relatively uneventful Autumn Budget helped ease domestic fiscal concerns, while dollar weakness and mounting pressure on the euro provided additional support.
Attention now turns to the Bank of England, where a rate increase is widely anticipated. Persistent inflation pressures and resilient economic activity have strengthened the case for additional tightening, although Governor Andrew Bailey is unlikely to offer a firm indication of subsequent moves. Markets currently favour a pause in December before another increase in February.
GBP/USD faces technical resistance around 1.3430, while GBP/EUR continues to approach the psychologically important 1.20 level. Although the policy announcement may offer limited fresh impetus, sterling's underlying outlook remains constructive, particularly against the euro.
EUR: Fiscal fears keep the euro on the back foot
The euro continues to struggle, with EUR/USD recording its seventh weekly decline in eight weeks and briefly approaching an 18-month low near 1.11. Attempts to recover have repeatedly stalled around the 21-day moving average, highlighting the persistent weakness in underlying sentiment.
Concerns over France's public finances remain a significant headwind, reinforced by Fitch's decision to place the country's credit rating outlook on negative watch. Widening sovereign bond spreads and political uncertainty are increasingly overshadowing the European Central Bank's hawkish stance. Although policymakers remain concerned about inflation, tightening financial conditions and weaker growth prospects could limit their room for manoeuvre.
This week's flash October inflation figures are expected to show price growth accelerating to 3.9%, potentially strengthening expectations for a December ECB rate increase. However, with fiscal risks dominating investor attention, stronger inflation alone may prove insufficient to deliver a sustained euro recovery.
Looking ahead
US midterm elections: Political outcomes could influence technology regulation, risk appetite and dollar positioning.
Bank of England decision: A widely expected rate increase puts the focus on Andrew Bailey's guidance and future policy expectations.
Eurozone inflation: October's flash CPI reading could reshape expectations for the ECB's December meeting.
Technology sector sentiment: Further volatility in AI-related stocks could drive broader risk appetite and dollar movements.
Geopolitical developments: US-Iran diplomatic signals and oil price fluctuations remain important influences on global currency markets.