Euro Under Pressure After Fitch Cuts France’s Credit Outlook While Sterling Holds Firm
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The euro remained under pressure early Monday, trading near $1.1186 against the US dollar and close to a 17-month low after Fitch revised France’s sovereign credit outlook from stable to negative on Friday evening. The agency cited weaker economic growth, higher borrowing costs and difficulties reducing public debt. France’s economy contracted by 0.1% in the third quarter, although the wider eurozone expanded by 0.4%, exceeding expectations of 0.2%.
Sterling held relatively firm around $1.3397 after gaining on Friday, ahead of the Bank of England's (BoE) interest-rate decision on 5 November. Markets strongly anticipated a 25-basis-point rate hike, which would take Bank Rate from 3.75% to 4.00%. Expectations of tighter UK monetary policy may have provided some support for sterling, although the BoE has not committed to raising rates.
Meanwhile, the US dollar eased slightly, with the US Dollar Index (DXY) around 101.83 as investors assessed the upcoming US midterm elections and employment report. Friday’s economic data showed US employment costs rising 0.8% in the third quarter, down from 0.9% previously. The moderation suggested easing labour-cost pressures, while expectations surrounding the Federal Reserve’s (Fed) next policy decision remained an important influence on currency markets.
GBP: Sterling Steady Ahead of BoE Rate Decision
GBP/USD: 1.3397 | EUR/GBP: 0.8346
Sterling remained relatively stable against the US dollar early Monday, with GBP/USD trading near 1.3397 after reaching a six-week high around 1.3430 on Friday. Meanwhile, EUR/GBP remained close to its recent lows amid concerns over France's fiscal outlook and expectations of tighter UK monetary policy.
Investors are preparing for the Bank of England's (BoE) interest-rate decision on Thursday, 5 November. Markets priced in approximately a 92% probability of a 25-basis-point rate hike, which would take Bank Rate to 4.00%. Such a move would mark the BoE's first rate hike since August 2023.
Attention is also turning to the BoE's guidance on future borrowing costs. Goldman Sachs now anticipates another rate hike in February 2027, although economists remain divided over how much further tightening may follow. Thursday's updated economic forecasts and Governor Andrew Bailey's comments could influence expectations for sterling.
Key technical reference levels for GBP/USD: Resistance sits near 1.3407, followed by 1.3471, while support sits around 1.3387, followed by 1.3344.
Key technical reference levels for EUR/GBP: Resistance sits near 0.8360, followed by 0.8385, while support sits around 0.8330, followed by 0.8300.
EUR: Euro Remains Subdued Amid French Fiscal Concerns
EUR/USD: 1.1186
The euro remained under pressure against the US dollar early Monday, trading around 1.1186 despite a modest recovery. Fitch revised France’s sovereign credit outlook from stable to negative late Friday, citing deteriorating public finances, rising borrowing costs and political uncertainty. The agency projected that France’s debt could reach approximately 124% of GDP by 2028, adding to concerns about the country’s fiscal position.
Friday’s economic figures presented a mixed picture across the eurozone. Third-quarter GDP grew 0.4%, exceeding expectations of 0.2%, while Germany’s economy expanded by 0.2%. However, France’s economy unexpectedly contracted by 0.1%. Inflation figures also differed, with Germany’s annual harmonised inflation easing to 2.8%, while France’s accelerated to 3.8%.
The euro's modest recovery coincided with stronger eurozone growth figures, although it remained limited amid concerns about France's fiscal outlook. Investors are now assessing the implications for European Central Bank (ECB) rate expectations ahead of Wednesday’s preliminary eurozone inflation figures. The data could provide further insight into whether policymakers may consider another rate hike in December.
Key technical reference levels for EUR/USD: Resistance sits near 1.1195, followed by 1.1260, while support sits around 1.1130, followed by 1.1100.
USD: Dollar Holds Steady Ahead of Key US Data
DXY: 101.83
The US dollar traded cautiously early Monday, with the US Dollar Index (DXY) near 101.83 as investors prepared for the US midterm elections and upcoming economic releases. The dollar remained subdued amid lower Treasury yields and renewed hopes for diplomatic progress in the Middle East.
Friday’s US Employment Cost Index rose 0.8% in the third quarter, slowing from 0.9% previously. Wages and salaries increased 0.7%, suggesting some easing in labour-cost pressures. However, inflation concerns continued to influence expectations for the Federal Reserve’s (Fed) next policy decision.
Markets assigned approximately a 72% probability to a December Fed rate hike. Attention now turns to Monday’s ISM Manufacturing PMI and Friday’s US employment report, which could influence Fed rate expectations and the dollar’s near-term direction.
Other Currencies: Australian Dollar Eases Before RBA Decision
AUD/USD: 0.7022 | NZD/USD: 0.5616 | USD/JPY: 157.73 | GBP/JPY: 211.3
The Australian dollar eased to approximately 0.7022 on Monday ahead of Tuesday's Reserve Bank of Australia (RBA) policy decision. Markets widely expect a 25-basis-point rate hike to 4.85%, which would take the cash rate to its highest level in nearly two decades.
Meanwhile, the yen weakened slightly, with USD/JPY trading near 157.73. The Bank of Japan (BoJ) reported further progress towards stabilising underlying inflation around its 2% target, while market expectations of a possible December rate hike persisted. GBP/JPY traded around 211.3 as sterling remained relatively firm.
The New Zealand dollar declined to around 0.5616, extending its weakness following last week's unexpected decision by the Reserve Bank of New Zealand (RBNZ) to leave interest rates unchanged. NZD/USD had fallen approximately 1.2% over the previous week as investors reassessed rate expectations.
Current Rate Table
| Currency Pair | Rate | Trend |
|---|---|---|
| GBP/USD | 1.3397 | Consolidation |
| EUR/GBP | 0.8346 | Bearish EUR |
| EUR/USD | 1.1186 | Bearish EUR |
| USD/JPY | 157.73 | Mildly bullish USD |
| AUD/USD | 0.7022 | Mildly bearish AUD |
| NZD/USD | 0.5616 | Bearish NZD |
| USD/CAD | 1.3973 | Consolidation |
Market Lookahead
Monday, Nov 02
- US ISM Manufacturing PMI (Oct)
Tuesday, Nov 03
- RBA Interest Rate Decision
- US Midterm Elections
- US JOLTS Job Openings (Sep)
Wednesday, Nov 04
- Eurozone HICP & Core HICP (Oct)
- US ISM Services PMI (Oct)
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)
- US Unemployment Rate (Oct)
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