Euro Rises Amid 4% Eurozone Inflation While Sterling Nears Seven-Week High

The euro and sterling extended their gains against the US dollar early Thursday as investors assessed fresh eurozone inflation figures and prepared for the Bank of England's interest-rate announcement. EUR/USD traded around 1.1269, while GBP/USD was near 1.3500 after sterling reached a seven-week high on Wednesday. Meanwhile, the US Dollar Index (DXY) declined to approximately 101.22, extending its recent weakness.

Eurozone inflation increased to 4.0% in October from 3.8% in September, reaching its highest level in three years. The increase was largely driven by energy costs, while core inflation remained unchanged at 2.5%. Although the figures matched expectations, they kept the possibility of another European Central Bank (ECB) rate hike in December in focus.

In the UK, services-sector activity improved in October, adding to expectations that the BoE could increase interest rates on Thursday. Market attention remains on whether policymakers signal further tightening after the anticipated increase.

US economic releases presented a mixed picture. Private-sector employment exceeded forecasts, but services-sector growth slowed slightly. Despite these figures, the dollar remained under pressure following the previous day's election-related market movements. Investors are now assessing how upcoming US employment data could influence Federal Reserve (Fed) rate expectations.

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GBP: Sterling Near Seven-Week High Before BoE

GBP/USD: 1.3500 | EUR/GBP: 0.8345

Sterling traded near 1.3500 against the US dollar early Thursday, remaining close to its strongest level since mid-September. GBP/USD had reached approximately 1.3503 on Wednesday before easing slightly. Against the euro, sterling showed relatively limited movement, with EUR/GBP around 0.8345. Both sterling and the euro also strengthened against the US dollar.

Wednesday's UK services data indicated an improvement in business activity. The final S&P Global Services Purchasing Managers' Index (PMI) increased to 52.8 in October from 52.1 in September, reaching an eight-month high. Although the final reading was below the preliminary estimate of 53.1, employment returned to growth and businesses reported stronger input-cost pressures. These developments suggested continued resilience in UK services activity ahead of the BoE's decision.

The BoE is widely expected to raise Bank Rate by 25 basis points to 4.00% from 3.75%. However, investors will be assessing the Monetary Policy Committee's voting split, updated inflation projections and Governor Andrew Bailey's comments for indications of whether additional rate hikes may follow. With a rate increase widely expected on Thursday, the guidance accompanying the BoE's decision could be particularly important for sterling's near-term direction.

Key technical reference levels for GBP/USD: Resistance sits near 1.3505, followed by 1.3535, while support sits around 1.3390, followed by 1.3345.

Key technical reference levels for EUR/GBP: Resistance sits near 0.8365, followed by 0.8400, while support sits around 0.8330, followed by 0.8315.

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EUR: Inflation Hits Three-Year High at 4%

EUR/USD: 1.1269

The euro strengthened against the US dollar during Thursday's Asian session, with EUR/USD trading near 1.1269. The pair extended its recent recovery as investors assessed eurozone inflation figures alongside continued dollar weakness. However, the euro's advance coincided with broader US dollar weakness, making it difficult to attribute the movement solely to the inflation figures.

Preliminary figures showed that eurozone headline inflation accelerated to 4.0% in October, matching economists' forecasts and rising from 3.8% in September. Energy inflation reached approximately 20%, while core inflation remained at 2.5%. The difference between headline and core inflation indicates that energy costs remain a major contributor to the current increase in consumer prices.

The figures kept the possibility of another ECB rate hike in December in focus. However, policymakers must also consider signs of moderating economic activity. October's final eurozone services PMI was revised to 51.4, while the composite index stood at 51.7, suggesting continued but modest expansion. Investors will be assessing whether higher energy costs begin to affect wages and underlying inflation before the ECB's next decision.

Key technical reference levels for EUR/USD: Resistance sits near 1.1270, followed by 1.1350, while support sits around 1.1200, followed by 1.1100.

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USD: Dollar Weakens Amid Mixed Economic Data

DXY: 101.22

The US dollar remained under pressure early Thursday, with the DXY trading around 101.22 after extending Wednesday's decline. The movement followed a broad adjustment in currency and bond markets after the US midterm elections. However, expectations for another Fed rate hike in December remained largely intact despite the dollar's weakness.

Wednesday's private-sector employment figures were stronger than economists had expected. The ADP National Employment Report showed that private-sector employment increased by 86,000 in October, exceeding economists' expectations of 69,000. September's increase was revised down to 86,000 from the previously reported 90,000. The stronger-than-expected October figure suggested that private-sector hiring remained relatively stable ahead of Friday's official employment report.

Meanwhile, the Institute for Supply Management's Services PMI declined to 54.5 in October from 54.9 in September, below expectations of 54.8. Although the reading remained above the 50-point threshold indicating expansion, the slowdown in new orders suggested some moderation in activity. The prices-paid index remained elevated at 73.0, highlighting persistent input-cost pressures.

Interest-rate markets were pricing in approximately an 80.7% probability of a Fed rate hike of at least 25 basis points in December during early Thursday trading. Investors will now focus on Thursday's initial jobless claims and Friday's nonfarm payrolls report for further evidence about labour-market conditions and their implications for Fed rate expectations.

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Other Currencies: Yen Strengthens Following BoJ Minutes

AUD/USD: 0.7011 | NZD/USD: 0.5648 | USD/JPY: 157.84 | GBP/JPY: 212.93

The Japanese yen strengthened against the US dollar early Thursday after the Bank of Japan (BoJ) released minutes from its September policy meeting. The minutes indicated that further interest-rate increases remained under consideration, with some members discussing the possibility of accelerating tightening if inflation risks intensified. USD/JPY traded near 157.84 as investors considered the likelihood of another BoJ rate hike in December.

The Australian dollar also advanced, with AUD/USD trading around 0.7011. Australia's trade surplus widened to A$2.826 billion in September, exceeding expectations of A$1.2 billion and increasing substantially from the previous month's revised surplus of A$185 million. The Australian dollar's recovery coincided with stronger domestic trade figures and broader US dollar weakness.

Meanwhile, the New Zealand dollar strengthened against the US dollar, with NZD/USD trading around 0.5648. The New Zealand dollar's advance occurred amid broader US dollar weakness, despite earlier evidence of weakness in New Zealand's labour market. The BoJ minutes and Australian trade figures provided additional domestic context for currency movements during the reporting period.

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Current Rate Table

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Market Lookahead

Thursday, Nov 05

• BoE Interest Rate Decision & Monetary Policy Report
• US Initial Jobless Claims

Friday, Nov 06

• CAD Employment Change & Unemployment Rate (Oct)
• US Average Hourly Earnings (Oct)
• US Nonfarm Payrolls (Oct)

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