USD: Holding firm near six month peaks
The US dollar index briefly touched its strongest level in half a year on Friday before ending the day unchanged. Even so, it still delivered its best weekly showing since early October, helped by a clear move above the 200 day moving average. If markets continue to shy away from risk, that upward bias is likely to stay in place.
Uncertainty is the theme driving everything at the moment. The absence of fresh US economic data is muddying the waters, expectations for Federal Reserve policy are shifting from one day to the next, and stress in the crypto space has spilled over into equities, forcing traders to unwind positions. Volatility indicators across shares and bonds are creeping higher, which underlines how fragile sentiment has become. Nvidia’s results offered a temporary lift, although not enough to change the overall mood. Even the dollar is behaving differently, reacting more sharply when markets lean towards higher rates than when expectations soften.
Last week showed how quickly pressure can ripple through crowded trades. There was no major policy update or economic surprise, yet markets sold off in a rapid burst that caught investors off guard. The speed of the move, rather than the size, was the unsettling part and reminded everyone how interconnected positioning has become. The slide eventually eased after dovish comments from New York Fed President John Williams pushed expectations for a December rate cut back towards eighty percent.
What stands out is that the dollar hardly weakened despite that shift. It suggests that for now the currency benefits more from any hint of hawkishness, while softer expectations do very little to knock it back. With nervous investors seeking safety and global risks building, the dollar remains well supported.
GBP: Budget week arrives with nerves attached
Sterling heads into the week looking worn out, having fallen around six percent against the euro since January. The pair managed to stay above one point one three two zero last week, finishing slightly higher, though the broader picture has not changed. For months, the pound has struggled under the weight of soft economic indicators, political leaks questioning the government’s ability to deliver fiscal credibility, and concerns about unity within the leadership. The selling pressure seems to have run its course for now, which explains the recent pause, and the one point one three area remains the line the market is determined to protect.
Options pricing continues to reflect a pessimistic tone in the run up to the Budget, although short term direction will depend heavily on how convincingly Rachel Reeves lays out her plans. The reversal of several income tax proposals has removed clarity rather than added it, leaving investors unsure about how the fiscal gap will be closed. If the strategy falls flat, the one point one three floor becomes the obvious target.
Elsewhere, sterling slipped by roughly half a percent against the dollar last week. When compared to other major currencies, the pound still has further room to adjust lower, given that GBP USD remains almost five percent higher this year. A weaker technical picture is forming as well. The pair has recently dropped beneath the 200 day moving average and the 21 day level has crossed underneath it, with the 50 day and 100 day measures close behind. The Budget could accelerate that trend if markets dislike what they hear.
EUR: Holding the line at one point one five
The euro finished last week nearly one percent lower against the dollar and is clinging just above the one point one five mark. The technical setup suggests that unless something fresh moves the market, short term downward pressure could start eroding the otherwise constructive longer term view. For now, uncertainty around US policy continues to dictate the direction of EUR USD, with the risk off mood giving the dollar an advantage.
In the coming days, the single currency may pay closer attention to European data. Confidence indicators from the European Commission will show whether morale can hold up in the face of mounting economic strain. Final quarterly GDP figures for France and Germany, together with German retail sales, will give a clearer picture of activity. Germany remains under close watch, with second quarter growth revised to minus zero point three percent and the third quarter flat. Any downward revision would confirm a technical recession in Europe’s largest economy. Inflation readings from France and Germany will also help determine whether price pressures are genuinely settling around the European Central Bank’s target.
If investors start to price in recession risk, the euro could come under renewed selling pressure. That said, as we have consistently noted, the broader trajectory for EUR USD will continue to be driven by developments in the United States, where uncertainty over data, policy and risk appetite remains the main deciding force.
