EUR/USD Weakens Amid Cautious Central Bank Signals

EUR/USD remains under downward pressure trading near 1.1600^[1] in Monday's Asian hours, extending its losses for a second consecutive session. The bearish tone of the pair is believed to be a rejuvenated US dollar strength^[2], as traders react to the modest remarks of the US Federal Reserve (Fed) officials. Even though the recent activity data in the US has been soft, the greenback^[3] is gaining backing because monetary policy is expected to be restrictive into year-end and this leaves minimal room to aggressively ease.

Market reports^[4] point out that the Fed officials, such as Kansas City Fed President Jeffery Schmid, have stressed that they need to lean against the growth in demand thus the current policy is only mildly restrictive. This position has made markets reconsider the possibility of December rate cut. CPME FedWatch Tool^[5] reported that the chance of a 25-basis point reduction dropped by a sharp 67% to 46% a week prior. The higher risk of a near-term decrease is assisting to anchor the Treasury yields and the US dollar, supporting the EUR/USD^[6] in favour of the down in the short term.

Market commentators^[7] note that a wider market mood also improved as the US government reopened after President Trump signed a funding bill after the 43-day closedown. The fiscal uncertainty has been resolved, and this has indirectly helped in stabilizing risk appetite in support of the dollar. Meanwhile, euro sentiment is still cautious following the European Central Bank (ECB)^[8] policy maker, Olli Rehn, who cautioned that sinking inflation should not be ignored, despite the slow but steady growth of the euro-area.

Analysts^[9] indicate that in the future, upcoming US data, such as the inflation statistics, consumer confidence, and manufacturing activity will be a major driver with regards to EUR/USD. Any indication of diminishing momentum may limit US dollar^[10] gains, although until then, the medium-term expectation of the pair is still burdened by policy divergence and continuing economic uncertainty in the eurozone. Overall, traders remain attentive to shifting macro signals as these factors continue to influence the EUR/USD exchange rate.

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GBP/USD Slips Amid Mounting Economic and Policy Pressures

The GBP/USD pair extended its decline trading near 1.3145^[11] in Monday's early trading hours, pressured by renewed concerns over the UK’s fiscal outlook and soft domestic data. The recent pullback between the pair is believed to have signified a change of heart as investors^[12] re-evaluated the short-term economic prospects of the UK. Price action reveals the pound has been unable to sustain recent gains, and the sellers have regained control following last week's corrective bounce. The short-term attention is still on whether the two can support the above 1.3100 region that serves as the next support in the short term.

Market reports^[13] note that the weakness of the pound is enhanced by the news reports that Prime Minister Keir Starmer and Finance Minister Rachel Reeves have cancelled plans to increase income tax rates before the November 26 budget. This action has brought new doubts to fiscal consolidation, straining the currency. Meanwhile, recent UK pointers^[14] such as the slowing rise in wages and weaker GDP figures still weigh on feelings. These releases have raised the anticipation of a December rate cut by the Bank of England (BoE)^[15], and the markets are pricing close to an 80% chance of a cut of 25bp. This supports the bearish bias of the GBP over the medium term though occasionally there is relief of the GBP due to short-term oversold condition.

Market commentators^[16] note that in the US, traders are gearing up to a backlog of economic releases after the reopening by the government. The information is generally likely to indicate the decelerating economy that may hamper the overall demand of the US dollar. Although the dollar trend is not evenly distributed, any indications of further US weakness^[17] can constrain the downside force on GBP/USD in the short-term. Nevertheless, the Fed expectations have been instead somewhat softened with markets giving the chance of a rate cut in December at about 54 percent, compared to the previous ones.

Analysts^[18] note that GBP/USD is still cautious. Short term moves can stabilise in case future US figures mitigate the dollar. However, the medium-term risks are still more towards the downside as the BoE^[19] policy expectations and strength of the UK macro fundamentals continue to jeopardise the pound prognosis. In short, the outlook suggests that uncertainty in UK fundamentals and diverging central-bank expectations will continue to shape the GBP/USD exchange rate.

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AUD/USD Softens as Dollar Strength Returns

AUD/USD weakened against the US dollar trading near 0.6520^[20] in Monday's early trading hours, retracing part of last week’s gains as renewed US dollar strength weighed on the pair. The pair is believed to have gone down when Fed officials^[21] raised their expectations of a December cut by being cautious. The changed Fed sentiment contributed to the upward movement of the US yields to the benefit of the greenback and curbed the Australian dollar^[22] but not its upward potential in the wake of recent domestic data-driven support.

Market reports^[23] indicate that higher Australian employment rates in the week before first gave a bottom to the currency, supporting the view that the Reserve Bank of Australia (RBA) will remain cautious and data dependent. ASX 30-Day Interbank Cash Rate Futures as of November 14 only showed a moderate likelihood of a reduction in the rate in the next RBA meeting^[24]. RBA Deputy Governor Andrew Hauser^[25] comments that the policy is still restrictive though subject to discussion and points out that the policy path going forward in the medium term is still uncertain and remains a factor that affects the AUD/USD price stability.

Market observers^[26] note that on the charts, AUD/USD remains in a well-established rectangular range and price action is falling around the nine-day EMA. The pair can also seek to re-test resistance at 0.6630, which is the upper limit of the consolidation area. A confirmed break higher than this would indicate the restarts of the bullish movement^[27], and this time around the 13 months high of 0.6707 would be exposed. Nonetheless, non-compliance with retention levels will see it slide towards the support level of 0.6470 and then the low of 5 months at 0.6414.

Analysts^[28] point out that in the future, future US economic data, such as retail sales, jobless claims, and PMI surveys will play a dominant role in US dollar sentiment. The US dollar may be weakened in the short-term, which provides little support to AUD/USD^[29] in case of any indication of declining activity. Nonetheless, strong Fed apprehension and international risk susceptibility remain a medium-term headwind to the pair. As uncertainty lingers, investors will closely monitor shifts in the AUD/USD exchange rate.

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EUR/GBP Steadies as UK Data Weakens Outlook

EUR/GBP traded around 0.8810^[30] in a narrow range in Monday's early trading hours, as markets weigh deteriorating UK economic conditions against a steadier tone from the ECB. It is believed that the dulled price movement of the pair^[31] is a lack of directional catalysts in the short-term, despite sentiment still showing a slight overall bias towards the euro. The initial trading of the European market reflects buyers keeping the price above the 0.8800 level, where short-term support is good, and the resistance is observed to be near 0.8800 level^[32] towards the highs of last week.

Market reports^[33] point out that the poor UK macroeconomic information is further straining the pound, a fact that confirms the anticipation that the BoE could shift to policy easing earlier than the expectations had been. Recent ONS data^[34] indicated that the UK GDP growth slowed to only 0.1% in Q3, which was lower than expected and sharply reduced after Q2. This gentler growth environment has pushed bets to cut rates further, with interest-rate swaps estimating likelihood of almost 79% decrease by 25 bps^[35] at the December 18 gathering. Reduced outputs and reduced expectations compromise the medium-term attractiveness of GBP and serve as a core underpin to support of EUR/GBP.

Analysts^[36] highlight that on the euro side, a hesitant yet consistent position of euro-policy makers provides moderate support on the EUR, which has stabilised the cross. Recent remarks of ECB Kazak^[37] highlighted that there is no cause to rush and make any changes in interest rates, instead, a data-driven strategy should be adopted. This position will minimize negative risks on the euro in the short run particularly against other currencies that are burdened with home economic troubles like the pound.

Analysts^[38] suggest that in the future, the traders will track any upcoming data releases in the US, such as the US CPI and retail sales figures this week, to get a wider risk sentiment picture. The US soft data may restore the growth worries across the world, which would indirectly burden GBP, as attention would be on the delicate economic performance of the UK. In aggregate, EUR/GBP^[39] is still short term positively biased, but medium-term risks remain high in case Eurozone data weakens or the BoE becomes less dovish in rhetoric. Given these dynamics, investors remain cautious as they evaluate the evolving EUR/GBP exchange rate in the current macro environment.

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