EUR/USD Steadies Amid Cautious ECB Outlook

The EUR/USD pair held steady and traded around 1.1580^[1] in Wednesday’s Asian session, extending its recent five-day winning streak. The euro is believed to have held a stern line with the investors still holding a reservation of optimism concerning the policy perspective of the European Central Bank (ECB)^[2]. The market sentiment indicates that the ECB may leave interest rates^[3] at the current level as economic activity and inflation rates remain balanced and close to the target levels of the central bank. This policy stability has offered a moderate foundation on the euro to enable it to consolidate recent gains.

Market reports indicate that the focus has shifted to the next round of inflation in Germany with the release of the October Consumer Price Index (CPI) and Harmonized Index of Consumer Prices (HICP)^[4]. This data can be a useful indication of price pressures in the Eurozone, and may shape anticipations of the next policy actions by the ECB. An exceeding-to-the-side print is believed to support the perception that the ECB^[5] might hold its conservative position, whereas the reverse may revive the debate on whether it would take further policy easing.

Market commentators^[6] indicate that in the US, the dollar remained slightly strong in the presence of hope that there was improvement in the government shutdown, which has been passed to be approved by the House and signed into law by the US President Donald Trump. It is anticipated that the fiscal crisis^[7] migth come to an end, reaching out to confidence, reinstating functions of the public sector and stirring the stream of held up economic information.

Analysts^[8], technically state that the greenback is still burdened with weaker labour market signals. Weak-than-anticipated Automatic Data Processing (ADP) monthly job figures^[9] bolstered the hopes of possible policy relaxation, as the markets were pricing a 68% chance of a 25-basis-point rate reduction in December. This dovish bias^[10] remains a curse to the upward movement of the dollar, offering temporary relief to EUR/USD, but longer term threats remain with the uncertainty in global growth and divergence in policy projections. Overall, the EUR/USD exchange rate reflects a cautiously optimistic market tone, supported by policy stability in the Eurozone and lingering pressure on the US dollar.

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GBP/USD Extends Losses as BoE Outlook Weakens

GBP/USD extended its decline for a second straight session, trading near 1.3140^[11] in Wednesday's Asian hours. The pair is believed to be under pressure as the pound is struggling to support itself following increasing expectations that the Bank of England (BoE)^[12] is likely to cut interest rates in December. The sentiment in the markets changed when Morgan Stanley, Citigroup and UBS Global Research predicted that the interest would decrease by 25 basis points to 3.75%^[13] citing the reasons of slowing UK growth and deflation of inflation.

Market reports^[14] indicate that further pressure on the pound was the comments of BoE policymaker Megan Greene. Greene^[15] said that the monetary policy could not be tight enough, citing the problem of chronic inflation and settlement wage increases above the desired levels next year. Her commentaries highlighted the internal policy schism in the BoE that implies inflation management is one of the primary risk factors. This is a defensive position that has continued to make traders watchful of further declines in the value of the GBP^[16] in case the central bank uses a dovish tone during its next meeting.

Market commentators^[17] note that, in the US, the US dollar rose sharply a notch higher after a bill was passed by the senate to reopen the government, which has enhanced short-term risk sentiment. The ADP^[18] employment data, however, which were released on Tuesday, dampened on some of the upside of the dollar. The figures indicated a steeper-than-anticipated decline in hiring in the private sector, which enhanced the wager that the Federal Reserve (Fed)^[19] will reduce its rate in December. According to the CME FedWatch Tool, there is a probability of 68% of a 25 basis point reduction.

Analysts^[20] point out that in the future, traders will pay attention to the upcoming information on US inflation and retail sales, which might influence future Fed expectations. Although US dollar strength in the short run might limit GBP/USD^[21] upside, the two currencies are exposed to a medium term downside risk in case the UK data remains weak and BoE policymakers are further tempted to ease the policy. Technically, the GBP/USD exchange rate remains vulnerable, with sentiment tilted to the downside as policy divergence between the BoE and the Fed continues to weigh on the pair.

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NZD/USD Slips as Dollar Gains on Optimism

The NZD/USD pair traded lower around 0.5655^[22] in Wednesday's early Asian session, extending its recent decline as the US dollar gains traction amid renewed optimism over a potential deal to end the US government shutdown. The Senate’s approval^[23] of the funding bill and prospects of swift passage in the House have lifted risk sentiment toward a resolution. This is supporting the Greenback while keeping the New Zealand dollar under limited pressure.

Market reports^[24] point out that the confidence in the US dollar by the investors has also been facilitated by the remarks made by the US President Donald Trump who supports a bipartisan deal to reopen the government. This has minimized the short-term fiscal uncertainty, but still existing apprehensions about the growth of the US economy^[25] still restrain the overall potential of the greenback. Meanwhile, traders are at the alert due to the impending Fedspeak^[26] which might offer more insights into the Fed policy position after the recent poor economic statistics.

Market commentators^[27] note that recent statistics out of the US, such as the ADP employment report, indicated a deceleration in the rate of job creation in the private sector, which would indicate possible labour market softening. The CME FedWatch tool^[28] has markets that are currently pricing in a 68% probability of a December rate cut. The anticipation of reduced borrowing rates would also limit US dollar^[29] returns over the medium run as investors assess whether the decline in monetary policy influenced economic strength.

Analysts^[30] suggest that in New Zealand, the Q4 RBNZ inflation expectations survey showed a two-year stable projection at 2.28, which indicates stable price projections in spite of a slight increase in the one-year projection. Although this will support the New Zealand dollar^[31] in the near-term, the overall trend is still bearish, and the pair will probably work off near 0.5700 and find support near 0.5620 before major US inflation and employment figures later in the week. The NZD/USD exchange rate remains under pressure as investors favour the US dollar amid improving risk sentiment and political stability in Washington.

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USD/CAD Holds Steady Amid Weak US Data

The USD/CAD pair traded flat near 1.4010^[32] in Wednesday's early European session, as traders weigh mixed signals from recent US economic data and the Bank of Canada’s (BoC) policy outlook. The pair is believed to have difficulty extending gains as fresh worries were raised regarding the weakness in the US labour market^[33] after the failure of the private sector to record satisfactory employment numbers. The ADP report^[34] reveals that private employers had lost an average of 11,250 jobs per week in the four weeks to October 25, which reflects the momentum of cooling on hiring. The information has strengthened speculations that the Fed can opt to implement policy earlier than expected.

Market reports^[35] point out that the political situation in Washington has contributed to short-term uncertainty. The decision by the US Senate^[36] to approve a compromise to end the longest government shutdown in history has led to a slight improvement in risk sentiment but now the focus is on the House vote and then reopening of government operations. There is a surge of postponed economic releases that are likely to be coming, and this will bring more information on the level of the slowing down of the US economy^[37]. The low numbers may intensify the expectation of a December rate cut, which will weigh down the dollar and provide short-term relief to the Canadian dollar^[38].

Market observers^[39] note that in Canada, the markets are awaiting the intended BoC, Summary of Deliberations, to give further clarity to the tone suggested by the policymakers after the October 2.25% rate cut. Governor Tiff Macklem^[40] recently indicated that the easing would not happen soon but analysts disagree on the future of 2026. A prudently positive approach by the BoC would stabilize the Canadian dollar mood.

Analysts^[41] show that USD/CAD is still a rangebound as the price has an arcing point of 1.4050 as its resistance and 1.3970 as the first support. Although the short-term strain of the US dollar^[42] may continue with poor data and dovish Fed expectations, the medium-term threats favour volatility as the markets offset the US policy uncertainty with the certainty of the Canadian steady rate. In short, the USD/CAD exchange rate is expected to remain rangebound in the near term as traders balance weak US data against a cautiously steady BoC outlook.

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