EUR/USD Faces Pressure Amid Fed Caution, Eurozone Uncertainty

The EUR/USD pair slipped back to trade around 1.1800[1] in Wednesday's early session, ending a two-day advance. It is assumed that the fall was preceded by a recovery of the US Dollar following statements of Federal Reserve Chair Jerome Powell[2], which gave a new life to the greenback. Market commentators[3] point out that the attention is focused on the IFO survey of Germany later in the day because it may give additional hints on the business sentiment of the Eurozone and the direction that the two might take.

Market reports[4] note that Fed Chair Jerome Powell said on Tuesday that he took a cautious tone and provided some backing to the US dollar. He explained that the Federal Reserve has to strike a balance between the danger of excessive inflation and the poor labour market to make a policy decision. Powell cautioned that the road ahead was going to be a tough one as the authorities think of further reduction of the rate. James Kniveton, the senior corporate forex dealer at the Convera, remarked on the reserved position of Powell[5]. Analysts[6] believe that traders have reduced a Fed reduction at the end of the year to 33 percent, and that the markets do not foresee anything in October.

Market reports[7] indicate that France is the second-largest economy in the Eurozone, which is under increasing pressure due to the political uncertainty and declining economic activity placing pressure on the euro. The HCOB Flash France Composite PMI[8], which was compiled by S&P Global, fell to 48.4 in September, compared to 49.8 in August, indicating the sharpest fall in five months. Analysts note that both services and manufacturing shrunk drastically and this points out the future. Market commentators[9] believe that such numbers indicate the growing apprehension that the French recession can impose additional pressure on the general Eurozone perspective and investor trust.

Market commentators[10] point out that the services sector in Germany was performing positively, as compared to France where the services sector is being burdened by political uncertainty. Bert Colijn[11] of ING argues that France is exuding instability as Germany is proving to be more resilient lately with the recent PMI data indicating the distinction between the momentum.

---

GBP/USD Slips Amid Weak UK PMI Worries

The GBP/USD pair slipped against the US dollar and traded around 1.3510[12] in Wednesday's early European trading. Weaker-than-anticipated UK S&P Global PMI[13] data in September is thought to have put pressure on the currency which signified worries about the domestic economy. Market commentators[14] point out that traders have shifted their focus to the statements made by Bank of England’s (BoE) External Member Megan Greene, who is scheduled to give a speech in the afternoon and perhaps provide more information on the policy.

Market reports[15] point out that the growth rate of the UK private sector declined in September with the S&P Global Composite PMI declining to 51 against 53.5 which was below the forecast of 52.7. The PMI of Manufacturing dropped to 46.2, falling behind 47.0 and Services PMI dropped to 51.9, falling behind 54.2. Some of the issues that were raised in the survey according to Chris Williamson[16], Chief Business Economist at S&P Global, were the weaker growth, declining overseas demand, reduced business confidence and huge job losses. Analysts[17] believe that the new numbers are an indication that there is growing pressure on the economy as the momentum still reduces.

Market reports[18] indicate that Federal Reserve Chair Jerome Powell stated on Tuesday that US policymakers had the challenge of choosing between an increase in inflation and a slow labour market. He referred to it as a challenging scenario although the interest rates are in a good position to deal with the two risks. Powell also said that there is no necessity of aggressive rate cuts and his reserved attitude might come to the rescue of US Dollar in the short run.

Market commentators[19] point out that traders would pay attention to the next US Personal Consumption Expenditures (PCE) Price Index that will be published on Friday. Analysts[20] presume that in case the numbers reveal low-than-anticipated inflation, this may place strain on the US dollar and may also result in selling pressure as traders re-evaluate the prospects of the Federal Reserve policy and economic energy.

---

USD/JPY Holds Steady Amid BoJ, Fed Divergence

The USD/JPY pair traded close to 148.00[21] in Wednesday trading session, posting a modest intraday gain as the Yen weakened following softer Japanese data and a stronger US Dollar. Market reports[22] point out that Japanese flash Manufacturing PMI decreased to 48.4 in September, compared to 49.7 in August, or the lowest in six months and the 14th contraction during 15 months. Market commentators[23] point out that the poor results raised issues that the Bank of Japan (BoJ) might not need to increase the interest rates to decrease Yen attraction.

Market commentators[24] also note that the upcoming Liberal Democratic Party leadership election in early October in Japan is also shifting focus hence bringing an element of political uncertainty. Analysts[25] assume that a victory of a more dovish candidate may postpone BoJ rate hikes, even more, but even so, it is still seen in the market that the possibility of a 25-basis-point rise next month is still viable as the economy is showing some strength. This is unlike the expectations of the US Fed[26] which is predicted to reduce its rates twice later on this year. The policy gap is being thought to assist in holding USD/JPY[27] in the market.

Market reports[28] point out that the US dollar has strengthened following warnings by the Fed Chair Jerome Powell that the policy in the market cannot be unwound too fast lest inflation goes unchecked. His remarks were greenback-friendly and were a reversal of a recent two-day pullback which strengthened USD/JPY. Market commentators[29] note that the traders are currently scrutinizing the next direction based on the upcoming US figures such as New Home Sales, final GDP and the PCE Price Index.

Analysts[30] indicate that in terms of the technical analysis, USD/JPY is found to be below its 200-day Simple Moving Average presenting some form of weaknesses though it is trading above 148.00. The resistance is at the range of 148.35-148.40 and 148.55 and more so up to 149.00-149.15 in an event where the bullish momentum persists. On the downside, support is observed at mid-147.00 levels and further to 147.20 and 147.00 and further the losses could go down to 146.20 and 145.50.

---

NZD/USD Gains Ground Amid US Dollar Weakness

The NZD/USD continued to regain against the US Dollar by trading around 0.5855[31] in Wednesday’s Asian session. The US Dollar is believed to have been weakened as the markets respond to mixed comments by the Federal Reserve officials[32]. Market commentators[33] observe that the mood also changed when the data of the US business activity failed to meet expectations which burdened the investor confidence and gave a slight boost to the New Zealand Dollar in the early trading.

Market reports[34] point out that Federal Reserve Chair Jerome Powell commented on Tuesday that risks persist in the labour market, as well as the rate of inflation and that the policymakers have a difficult road ahead in determining what to do next. Although the Fed has already indicated more easing in future, Powell did not give any impression that he is in support of a rate cut during the next meeting. Market observers[35] note that the expectation in the market is very high with the investors pricing in almost 90% probability of a rate cut in October, only a little lower than the 92% probability that was observed previously.

Market commentators[36] point out that the US business activity has slowed down in September as flash Composite PMI by S&P Global cooled down to 53.6 in September, against 54.6 in August. Analysts[37] believe that the weaker figures were pressuring the US dollar giving some kind of help to currency competitors. Market reports[38] state that the Manufacturing PMI has dropped to 52.0 as compared to 53.0 in the past, with the Services PMI also decreasing to 53.9 at the time of the latest reading (54.5). Market observers point out that these numbers indicate a less aggressive growth when compared to the previous year and it is believed that the US economy may not be growing the way it has been in the past when the months of autumn are approaching.

Market reports[39] point out that the next Governor of the Reserve Bank of New Zealand is Anna Breman, named by the Finance Minister of the country, Nicola Willis. Breman will assume a five-year term on 1 December and succeed the leadership of the central bank at a time when the monetary policy is vital to the stability of the economy.

---

Stay Ahead in the Currency Game

Whether you're a daily FX trader or handle international transactions regularly, our 'Currency Pulse' newsletter delivers the news you need to make more informed decisions. Receive concise updates and in-depth insights directly in your LinkedIn feed.

Subscribe to 'Currency Pulse' now and never miss a beat in the currency markets!

---

Ready to act on today’s insights? Get a free quote or give us a call on: +44 (0)20 7740 0000 to connect with a dedicated portfolio manager for tailored support.