GBP/USD Extends Recovery Amid Cautious Market Sentiment

Friday saw the GBP/USD pair extend its recovery into the 3rd consecutive session, following this week's upward recovery since the lowest point of the month of early August around 1.3250. The pair traded between mid 1.3400s[1], the highest point in one and half week, and was mainly backed by the general weakness of the US dollar. The most recent surge is mild since investors are worried about upcoming major US macroeconomic reporting[2], such as the retail sales and consumer sentiment figures that may shape future Federal Reserve (Fed) policy actions.

Market reports[3] point out that the latest data of the UK has not helped much in strengthening the view of the British Pound (GBP). The poorer than expected employment figures on Tuesday strengthened the speculation that the Bank of England (BoE) can maintain a slow rate of interest cuts in the next few months. Meanwhile, ongoing fears about the fiscal outlook of the UK before the Autumn Budget[4] in November are souring the optimistic mood about the Pound, curbing the upward potential of the pair even as the near-term momentum improves.

Technically, market watchers[5] note that the GBP/USD pair's persistent break above the 4-hour chart's 100-period Simple Moving Average (SMA) and the 38.2% Fibonacci retracement of the September–October fall lend support to a short-term positive bias. A sustained break above the 1.3480-1.3500 region would reveal the 1.3545-1.3550 zone as the next upside objective, according to momentum indicators[6] that are still positive and point to the possibility of a further rise in that direction.

Analysts[7] indicate that the 1.3400 handle supports immediate support on the downside, with 1.3355 and 1.3300 following. A decline below these levels would indicate a retest of the 1.3250[8] area and fresh selling pressure. Overall, dismal UK fundamentals and the possibility of stronger-than-expected returns continue to cloud the medium-term outlook, even as near-term technical favour additional GBP/USD advances.

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EUR/USD Extends Gains Amid Political Stability Boost

The EUR/USD pair extended its gains for the fourth consecutive session, trading near 1.1710[9] in Friday's Asian session. After France's government's survival of a no-confidence vote, which reduced immediate political uncertainty, the Euro[10] is believed to have continued its upward trajectory. Market reports[11] point out that the Prime Minister Sebastien Lecornu's decision to halt a contentious pension reform garnered little support from other parties, providing the second-largest economy in the Eurozone with temporary stability. Together with stable investor morale, this political respite made the single currency more resilient to the generally declining value of the US dollar.

Market reports[12] point out that the European Central Bank's (ECB) officials' remarks have given the Euro a contradictory policy backdrop. Even if the ECB's most recent forecasts indicate that interest rates will not change, policymakers like Edward Scicluna and Martin Kocher[13] warned against additional rate reduction, pointing out that it is important to "keep powder dry" in case of emergencies. These comments reduce short-term downside risks for the Euro and support expectations that the ECB would keep a stable posture throughout the year.

As the government shutdown enters its third week, market reports[14] note that internal political stalemate continues to exert pressure on the US currency. Treasury yields[15] and investor confidence have been negatively impacted by the Senate's ninth unsuccessful attempt to approve a financing measure, which has caused a move towards more politically stable or higher-yielding assets like the Euro. Recent worse US statistics, such as muted retail sales[16] and lower unemployment claims numbers, have further exacerbated the dollar's decline by feeding forecasts of slower economic growth.

Market observers[17] indicate that for additional guidance, traders will keep a careful eye on the next US industrial production and Michigan consumer sentiment data. Although ECB caution and wider worries about Eurozone growth[18] may limit medium-term gains, a continuation of negative readings might maintain downward pressure on the dollar and allow EUR/USD to consolidate above 1.1700 in the short run.

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NZD/USD Advances as Dollar Weakens on Dovish Fed

The NZD/USD pair extended its upward momentum in Friday's Asian trading, trading near 0.5730[19] as the US dollar continued to face pressure from mounting fiscal and monetary concerns. The ongoing 16th day US government shutdown[20] is believed to have undermined investor confidence in the Greenback in the process of increasing economic turmoil. In the meantime, the expectations of policy easing are being stimulated by dovish comments of the Fed officials, which further pressures the US dollar[21].

Market observers[22] note that the market mood shifted to cautiousness following Fed Governor Christopher Waller indicating an additional interest rate reduction in the next meeting in October with Fed Governor Stephen Miran suggesting an even more severe easing course towards 2025. Market reports[23] indicate that traders place a 98% chance that the Federal Reserve will reduce the rates by 25 basis points this month with an extra cut after that fully priced in. The rising belief in US rates has supported short-term demand on the New Zealand dollar and provided the couple with slight upward momentum.

Market commentators[24] point out that the wider risk mood is still weak. Increased trade tensions between the US and China, which is the largest trading partner of New Zealand, is a possible headwind for the Kiwi. The intention of both countries to add additional port charges to cross-country cargo may raise the cost of logistics and reduce the trade flows, lowering the enthusiasm about the export prospects of New Zealand[25].

Analysts[26] suggest that in the future, traders will be keen on forthcoming data releases in the US such as retail sales and initial PMI. The weaker readings may strengthen anticipations of further monetary easing, and this would worsen the US dollar[27] in the short run. However, the medium-term path of the NZD/USD[28] continues to be limited by uncertainty in the global growth and risks in terms of trade, with the major resistance of the currency observed around 0.5750 and the first potential support being 0.5700.

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USD/CAD Slides as Fed Dovish Tone Deepens

The USD/CAD pair slipped lower in Friday's Asian early hours, trading around 1.4040[29] as the US dollar softened against the Canadian dollar. The market sentiment is believed to have become cautious due to the re-emerged worries over the tension of global trade and a long US government shutdown which is putting a burden on the greenback[30]. The ambiguity of fiscal discussions and the possibility of an economic crash as a result of prolonged federal shutdowns are putting pressure on the US dollar in the short run.

Market commentators[31] note that investors are also still concentrated on indications of declining performance in the US economy, which have reinforced the anticipation of further Fed rate reductions. Remarks by Fed Governor Christopher Waller and Governor Stephen Miran[32] indicated the possibility of the further easing of policies in the next meeting in October given the mixed labour market indicators and low inflation rates. These dovish comments have encouraged traders to mark in on the more drastic rate cuts in the months ahead stifling the rise of the US dollar.

Market reports[33] indicate that a weaker greenback has provided the Canadian dollar with some short term support though there are downside risks in the market with recent declines in the price of the crude oil. Being the largest export product in Canada, low oil prices will pour down on the overall performance of the Canadian dollar[34] and might also restrict future progression. Market players are, however, keeping close eyes on the energy market trends to see how it is stabilizing which could further support the Loonie.

Analysts[35] indicate that the next focus will be on the future of the US economic releases such as retail sales and consumer sentiment data later in the session. The calls of weak readings may strengthen the argument of monetary easing in the near future and maintain the pressure on USD/CAD[36]. Although the short-term bias is tilted a bit towards the lower, the risk in the medium term still exists in the event of the further weakening of the economy and the further drop in oil prices.

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