USD: Yen weakness keeps the dollar supported

The dollar remains firm as the yen slides following the confirmation of Sanae Takaichi as Japan’s new leader. Her coalition deal with the Japan Innovation Party has driven Japan’s Nikkei index to record highs, weighing on the yen and supporting the dollar across markets.

Continued dollar demand linked to USD/JPY is expected to cap GBP/USD around 1.34 in the near term, a level aligned with the descending 100-day exponential moving average. Analysts suggest the greenback’s momentum may persist until markets reassess the outlook for US yields and Japan’s policy direction.

GBP: Softer inflation sparks rate-cut expectations

UK public borrowing in September reached £20.2 billion, slightly below expectations and broadly in line with the Office for Budget Responsibility’s projection. A revision to VAT receipts corrected a previous error, trimming this year’s overspend to £7.2 billion and bringing the deficit since April to £99.8 billion.

The pound remains underpinned by stretched short positioning, which has limited further downside ahead of the 26 November event. However, weaker inflation data has shifted focus towards further monetary easing. September’s CPI rose 3.8 percent year-on-year, below the 4.0 percent forecast, with core inflation easing to 3.5 percent. Markets now price a 70 percent chance of another Bank of England rate cut in December.

While the miss offers relief to households and businesses, it adds near-term pressure on sterling. Analysts still see scope for recovery once rate expectations stabilise and domestic data show firmer momentum.

EUR: Limited support from Lagarde’s remarks

The euro traded quietly, with EUR/USD recovering from 1.1580 to above 1.16 after comments from ECB President Christine Lagarde. She echoed German Chancellor Friederich Merz’s call for a single European stock exchange and deeper financial integration.

The remarks provided little immediate policy guidance, leaving the euro vulnerable to broader political and economic headwinds. Ongoing instability in France and rising US-EU trade tensions continue to highlight the eurozone’s fragmentation.

Oil prices rose on renewed US sanctions targeting Russian producers, a development that typically weighs on the euro given the region’s reliance on imported energy. However, with WTI still down around 3.7 percent this month, the impact on FX markets was muted.

Traders will watch France’s INSEE business confidence and euro area consumer sentiment data for early signs of political uncertainty filtering into the real economy.

Looking ahead: Greenback remains in control

Attention turns to inflation and labour data as investors gauge the extent of central bank easing into year-end. The dollar retains a clear advantage, while sterling and the euro face limited upside amid soft data and policy uncertainty.

GBP/USD appears range-bound between 1.33 and 1.34, and EUR/USD may struggle to sustain gains beyond 1.16 without stronger economic signals. A softer dollar later this quarter could offer some relief, but for now, US strength continues to dominate currency markets.