EUR/USD Extends Gains Amid Easing Trade Tensions
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EUR/USD continued its upward momentum for the fourth consecutive session and traded near 1.1640[1] in Monday's early Asian hours. Market reports[2] point out that the euro continued to gain slight momentum following the comments by European Central Bank (ECB) Governing Council member Jose Luis Escriva that he is content with the current borrowing rates because the inflation rate is at the target. Market commentators[3] indicate that the remark supports forewarnings that the ECB will not change its policy position, which lends short-term support to the common currency. Traders might shift their attention to the German IFO Business Climate Survey[4] to gain even more information on the regional business mood.
Market commentators[5] point out that political risks in the Eurozone may soften gains. The leader of the Socialist Party in France, Olivier Faure, has threatened to overthrow the government of Prime Minister Sebastian Lecornu, unless his budget plans are passed, which includes increased taxation of the wealthy. The increased political uncertainty might strain the Euro in the coming days, particularly in case a no-confidence vote breaks out in the coming days, not to mention that the parliament in France[6] is already fractured.
Market observers[7] note that the US dollar could get a second lease of life after Washington and Beijing reportedly agreed on several critical trade barriers, which will lead to a TrumpXi summit later this week. This reduced tension on the trade enhances the confidence in the market in general and restricts the ability of the EUR/USD to increase.
Analysts[8] suggest that ahead of us, investors will track the data on the US GDP and PCE inflation, which will be released later this week. Weaker US data will burden the dollar providing temporary reprieve to the EUR/USD[9]. Nevertheless, the further development of trade relations and possible recovery in US data[10] can limit the further Euro gains thus keeping the two in the range of 1.1600-1.1700 consolidation in the nearest term.
GBP/USD Struggles to Sustain Recovery Amid Weak Outlook
The GBP/USD pair started the new week on a steady note, trading slightly above the 1.3300[11] psychological mark in Monday's Asian session. The absence of robust follow-through buying is believed to underscore existing caution in traders, and the larger market tone[12] remains skewed to the downside. The pair has prolonged its six days of losses, which is an indication of continued pressure on the pound following the dovish monetary policies and prevailing macroeconomic[13] headwinds in the UK.
Market observers[14] note that the poor performance of the sterling is partly because of increased expectations that the Bank of England (BoE) will start to ease the monetary policy earlier than it was earlier expected. Markets are now pricing a 25-basis-point[15] rate cut in November and about 65 bps of cuts by year-end with the slow build of inflation and indications of the UK labour market weakening the argument of sustained tightening. Moreover the UK fiscal outlook before the already scheduled November Autumn Budget[16] is also taking a toll on sentiment, curbing any meaningful rebound of the pound.
Market reports[17] indicate that the US dollar is still within its range after a pullback last week following a one-week low due to the softer US CPI data and continued speculation that the Federal Reserve (Fed) might give two more cuts in the rate in 2025. Investor caution before this week's scheduled FOMC policy meeting and release of the US PCE Price Index[18] keeps dollar demand somewhat restrained. Such data points will play a critical role in influencing the expectations of the policy direction of the Fed.
Analysts[19] state that in the short run, GBP/USD will probably be maintained above 1.3300, although the overall trend is still downward until macro conditions in the UK change or the USD gets debilitated by a significant margin. The directional movement hereafter will probably depend on the imminent US inflation and spending rates[20], which may determine the direction of the pair till November.
NZD/USD Gains on Renewed Trade Optimism
The NZD/USD pair attracted fresh buying interest and traded near 0.5770[21] in Monday's Asian session as renewed optimism over US-China trade discussions lifted risk sentiment. The market eased as reports indicated that Washington and Beijing[22] had agreed to a framework deal to prevent the imposition of further tariffs on Chinese imports, which led to a rise in the demand of the risk-sensitive New Zealand dollar. The meeting between the US President Donald Trump and the Chinese President Xi Jinping later this week in South Korea[23] is today perceived as one of the major events that could dictate the short-term orientation of the kiwi.
Market reports[24] indicate that the US dollar, in its turn, continues to face mild pressure because investors are pricing in the possibility of another 25-basis-point rate cut coming at its October policy meeting, after doing the same in September. The less robust US economic signals such as slower consumer expenditure and underperforming labour markets growth[25] have only strengthened expectations on a more dovish Fed policy. In case of any future releases like the US PCE inflation report and the ISM Manufacturing PMI[26] disappointments, the greenback may experience more headwinds, which will offer more support to the pair in the near future.
Market commentators[27] report that domestically, the Reserve Bank of New Zealand (RBNZ) shocked markets by lowering its Official Cash Rate (OCR) by 50 bps to 2.5%, an indication that it was ready to do more in case the economic situation worsened. Although the deeper-than-anticipated reduction had affected the kiwi, the global mood and the prospects of the Chinese trade have assisted the currency to gain lost berth.
Analysts[28] indicate that the support is around 0.5730 and the technical support above 0.5800 might provide opportunities to hit 0.5845 resistance. In general, although short-term momentum is oriented towards the kiwi due to trade optimism and Fed dovishness, there are still risks in the medium term in case of a drop in global growth or domestic inflation.
USD/CAD Slips as Softer Inflation Pressures Dollar
The USD/CAD pair edged lower to trade around 1.3980[29] in Monday’s Asian session, retreating after two sessions of marginal gains. The move is believed to represent increased pressure on the US dollar because of softer US inflation data[30] that strengthened predictions of the Fed to start lower rates shortly. The CME FedWatch Tool[31] shows that the likelihood of a rate cut in October and a further cut in December is now priced at 97% and 96% respectively, which is taking a toll on the near-dated viability of the greenback.
Market commentators[32] indicate that the US Bureau of Labor Statistics (BLS) figures revealed that headline CPI increased 3.0% on a yearly basis in September, which is under the anticipated 3.1% and slightly above the 2.9% in August. The CPI[33] rose by 0.3 on a monthly basis and core CPI rose by 0.2, the latter being lower than the consensus expectations. The less aggressive inflation path is encouraging the perception that the Fed[34] could switch to an easing phase before the end of the year, which will encourage traders to de-long positions in the dollar.
Market commentators[35] note that the pressure against the pair on the downside might be constrained in the near term, as the greenback attracts weak support through the boost in US-China trade sentiment. Reports[36] that the two had reached a tentative agreement before a possible Trump-Xi meeting on Thursday relieved investors of renewed fears of the risk of tariffs. Furthermore, the comments of US Treasury Secretary Scott Besset that the country would not impose 100% tariffs on Chinese imports in the short term provided a sense of stability to the larger risk-taking.
Analysts[37] suggest that as we look into the future, traders will be looking at further US GDP and PCE inflation data in the later part of this week to provide further indication on the direction of the Fed. As soft US data keeps topping US dollar gains, increased trade friction with Canada due to new tariff announcements by President Trump[38] may create a short-term volatility in USD/CAD pair. In general, the couple maintains a circumspective mood, and the consolidation is likely to happen soon until some clarity can be seen.
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