GBP: Fragile Start for Sterling
Sterling opens the week on weaker footing as markets look ahead to Thursday’s Bank of England policy announcement. The Bank is expected to keep the Bank Rate at 4.00 percent, reflecting persistent inflation near 3.8 percent and uncertainty surrounding the 26 November Budget. Policymakers are likely to adopt a cautious stance, preferring to wait for clearer signs of moderating inflation and further softening in the labour market before easing policy.
Following September’s softer inflation reading, expectations for rate cuts have firmed, but the first move now appears more likely in early 2025 than this year. November should bring another pause, with the Bank maintaining a patient tone while keeping future easing in consideration.
From a technical perspective, GBP/USD has slipped below its 200-day moving average, bringing the 1.30 level into view for the first time since April. The pair remains vulnerable to further weakness. The upcoming Budget could provide a temporary lift if fiscal tightening is viewed as credible, but any mix of tax rises or spending restraint would likely reinforce the case for monetary easing later on. The pound’s medium-term bias therefore remains tilted lower.
USD: Dollar’s Resilience Continues
The US dollar remains firm despite consecutive Federal Reserve rate cuts in September and October. The DXY index has stayed within its recent range since May, gaining two percent in October, its first monthly rise since July. Underlying support stems from steady US growth, persistent fiscal deficits, and a market that has already priced in much of the expected policy easing.
While softer data has clouded the outlook, the absence of official labour statistics due to the ongoing government shutdown has kept policymakers cautious. Several Fed officials have warned that inflation remains elevated, suggesting the threshold for further rate cuts is high. Traders are instead turning to alternative indicators such as this week’s ADP employment report for direction.
The dollar’s firm tone may persist through November. If labour data point to continued strength, the currency could consolidate further within its existing range. A clear breakout above the five-month upper band, however, may still require a stronger fundamental trigger, possibly a resolution of the shutdown or a shift in global growth sentiment.
EUR: Searching for Stability as ECB Holds Course
The euro has weakened modestly against the dollar but held steady versus sterling, reflecting relative calm rather than renewed momentum. Eurozone data remain mixed, with Q3 GDP slightly outperforming expectations while Germany’s flat reading highlights the region’s ongoing fragility. The ECB has signalled comfort with current settings, with President Lagarde reaffirming a meeting-by-meeting approach and avoiding firm guidance.
EUR/USD remains driven primarily by US developments rather than eurozone fundamentals. A firmer ECB tone combined with modest growth improvement could lend support into year-end, though a sustained recovery would likely depend on softer US data. This week’s German industrial production and factory orders figures will help gauge whether fiscal measures are beginning to stimulate activity.
Looking Ahead
The weeks ahead bring a dense calendar of policy and data releases. In the UK, the Budget will test fiscal credibility and help shape expectations for early-2026 BoE policy. In the US, any resolution to the government shutdown and the eventual release of labour data could redefine the Fed’s policy outlook. Across the eurozone, German output data and ECB communication will determine whether recent optimism can hold.
For now, central banks remain patient, awaiting confirmation rather than speculation. Market volatility is likely to stay event-driven, with conviction still in short supply.
