USD: Shutdown ends and the data cycle resumes
The main development yesterday was the formal conclusion of the US government shutdown, with President Donald Trump signing the legislation that brings the forty-three day stalemate to an end. Although agencies can now begin to reopen, it will take time for operations to return to normal, which means the flow of official data may remain patchy for a little while yet. The temporary funding arrangement only carries the government through to thirty January, leaving open the possibility that another confrontation could arise. At the same time, Democrats were forced to abandon their preferred healthcare provisions that would have expanded subsidised coverage. Financial markets may be relieved for the moment, but the broader picture still leaves room for doubt about the durability of this truce.
The dollar index has continued to trade within a narrowing corridor formed by the 200-day and 21-day moving averages. As the space between these two measures becomes increasingly compressed, short term constructive signals appear to be testing the more persistent negative trend that has characterised the dollar’s performance through 2025.
Now that official statistics are returning to the calendar, the dollar index looks poised for a break beyond this recent consolidation. The pattern that began to form in late October and has persisted into November is still intact for now, with the 99 area providing an anchor. Immediate support is still seen near 99.250.
GBP: Politics offer no shelter for sterling
EUR/GBP has climbed through 0.88 more rapidly than anticipated and is now trading at levels not seen in almost three years. The political narrative in the United Kingdom shifted again yesterday. What began as poorly sourced commentary quickly escalated into public acknowledgement that figures within Labour were exploring the possibility of challenging Prime Minister Keir Starmer. A series of further claims then surfaced, alleging that Health Secretary Wes Streeting had been involved in attempts to remove the Prime Minister. Streeting rejected the idea outright, describing it as counterproductive gossip circulated by unnamed individuals.
Removing a sitting Labour Prime Minister remains extremely difficult, yet the episode has reinforced investor concerns about the government’s ability to navigate the forthcoming Autumn Budget and the broader economic landscape. The story has taken on a somewhat sensational tone, but beneath that lies a more serious point. Fiscal pressures are now being interpreted through the lens of a party that appears increasingly divided. This has provided an additional source of risk premium, pushing sterling lower. A recovery looks unlikely before the twenty six November Budget.
Adding to the unease, today’s figures showed that UK GDP grew by only 0.1 per cent in the three months to September, compared with expectations of 0.2 per cent, while the monthly reading for September slipped by 0.1 per cent.
Following several days of political turbulence, around fifteen per cent of a quarter point cut had fallen out of market pricing. This was primarily due to higher political risk influencing longer dated yields. Today's confirmation of softer growth may encourage markets to re-introduce that easing bias, leaving sterling vulnerable on both the macroeconomic and sentiment sides.
EUR/GBP continues to push higher, with immediate objectives now centred around the 0.8870 to 0.8900 region. Initial support remains close to 0.8770, followed by the 21-day moving average near 0.8700.
EUR: Lacking momentum while awaiting stronger data
EUR/USD remains stuck near its 21-day moving average just under 1.16. Repeated attempts to move higher have stalled at this point, signalling that demand for the euro remains subdued. In such a contained environment, both advances and declines are likely to be limited. The end of the US government shutdown should soon restore the release of key economic indicators, which may provide the next catalyst for direction.
Looking towards 2026, relative growth performance will be an essential driver of major currencies. Unless the expected gap between euro area growth and US growth begins to narrow, the more constructive EUR/USD outlook that prevailed through 2025 may struggle to re-establish itself.
European fiscal support could help lift activity next year, although political uncertainty in France complicates the picture. The United States, in contrast, has managed the recent period of tariff uncertainty better than many expected. Solid equity performance, investment associated with artificial intelligence, and a relatively easy policy mix have all helped. The eurozone to United States economic surprise index differential has turned positive once more, indicating a relative improvement in European data. Even so, the change remains tentative. To sustain a stronger euro, markets will require a combination of positive euro area surprises and clear weakness in US releases.
An unusual feature of the current environment is the timing of monetary easing. The Federal Reserve is projected to cut rates later than the European Central Bank. With euro area rates likely to have bottomed near two per cent, and markets expecting three Federal Reserve cuts over the coming year, the yield outlook still offers some support for a medium term rise in EUR/USD. However, economic outcomes must align with that narrative for it to hold.
Positioning provides a further complication. Leveraged funds retain only modest euro shorts, while real-money investors have accumulated long positions that are now close to their highest levels since the middle of 2023, based on CFTC disclosures. This reflects the optimistic structural and cyclical view that took shape after early April. It also signals that scope for additional euro buying may be limited unless a clear new driver emerges. Taken together, stretched positioning and lingering uncertainty suggest that further EUR/USD gains may be difficult to achieve until the growth and policy outlook becomes more consistent.
