GBP/USD Rebounds as Fed Easing Bets Rise

The GBP/USD pair rebounded to trade around 1.3350[1] in Wednesday’s Asian session, after recovering losses from the previous two sessions. The recovery is thought to have been largely influenced by the fresh weakness in the US dollar as market actors placed more bets on additional Federal Reserve (Fed)[2] rate reductions in 2025. The traders also price in a 94% chance of a quarter-point reduction in the Fed funds rate[3] in October and a 93% chance of the same in December, according to the CME Fedwatch Tool, in response to the anticipation that the Fed will carry out the monetary policy with further rate cuts to halt the declining pace of growth.

Market reports[4] note that Fed Chair Jerome Powell solidified this view on Tuesday saying that the central bank is still on track to provide another reduction in the rate this month despite the low economic visibility amid a possible government shutdown. Another point Powell raised was the deteriorating labour market, where labour is being hired gradually but will probably slow down even more. Further remarks by Fed officials[5], such as Stephen Miran, Christopher Waller, and Jeff Schmid, will also be monitored later in the day to confirm the policy direction of the Fed.

Market commentators[6] highlight that although the pair climbed, the pound sterling is experiencing headwinds caused by increasing evidence of a slowing UK labour market. Latest statistics[7] indicated a slowing wage growth and an increasing unemployment rate, which strengthened the anticipation that the Bank of England (BoE) might follow another rate cut by the end of the year. It is also reported[8] that the markets are pricing in about 46 basis points of additional easing in 2025, putting a strain on the medium-term view of the currency.

Analysts[9] suggest that in the short run, GBP/USD could be supported by weaker data releases in the US especially should future retail sales and housing events confirm a decline in consumer activity. But, any long-term momentum could be minimal since growing differences in growth opportunities and expectations of central banks on both sides cause investors to be careful.

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USD/CAD Slips as Dovish Fed Weighs

The USD/CAD pair edged lower to trade around 1.4030[10] in Wednesday's early Asian trading, after two consecutive days of gains. The move is believed to have come at a time when the US dollar weakened after dovish comments by a number of Fed[11] officials thus encouraging traders to re-evaluate the pace and extent of future rate cuts. Market commentators[12] note that market participants are keeping an eye on additional remarks by Fed members, such as Stephen Miran, Christopher Waller, and Jeff Schmid, which might give them further insights into the policy path.

Market reports[13] point out that the central bank head Jerome Powell repeated that the central bank was still on track to achieve another 25 basis-point reduction in the rate later in the month, although a looming government shutdown complicates the economy. Powell admitted that momentum on hiring has decelerated and may decelerate further in the future indicating a more cautious position. Boston Fed president Susan Collins[14] remarked that the monetary policy is not in a current course and will constrain even as the monetary policy eases in the future. Markets now anticipate a 94% chance of an October rate cut and a 93% chance of yet another one in December according to the CME FedWatch Tool.

Market reports[15] indicate that the Canadian dollar rose slightly against the weaker greenback though it is still pegged by the weakness in crude oil prices, with the WTI currently trading at an average of 58.20 per barrel. Oil losses resumed in a second phase following the International Energy Agency (IEA)[16] caution of a possible supply surplus in 2026, which discouraged demand on commodity-associated currencies such as the CAD.

Analysts[17] point out that moving forward, the focus will be on future US retail sales and housing figures, which may give more information on the strength of the economy. Though the immediate strain on USD/CAD might continue to exist due to dovish Fed expectations[18], the medium-term risks continue to be skewed to the recovery of the US dollar in case economic indicators demonstrate increased strength.

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NZD/USD Rises as Chinese Data Limits Gains

The NZD/USD pair edged higher and traded near 0.5720[19] in Wednesday's Asian session, as modest US dollar softness offered short-term support. The gains in the Kiwi are believed to be capped as investors evaluate weaker-than-anticipated Chinese inflation figures[20] and renewed trade tensions between the United States and China. The pair still gathers around its weekly peak with the traders expectant of additional stimulus due to upcoming US macro releases.

Market reports[21] indicate that the figures published by the National Bureau of Statistics in China revealed that the Consumer Price Index (CPI) decreased by 0.3% year on year in September, a slight bit higher than the market expectations of 0.1%. Prices increased only 0.1% in a month, and the Producer Price Index (PPI)[22] continued to fall into deflation in the 18th month. Continued disinflation in China highlights weak domestic demand, which may burden the New Zealand export prospects given its strong trade relations with Beijing.

Market commentators[23] note that additional negative sentiment was further dampened by escalation of geopolitical tension, when Beijing threatened retaliation on the proposal of 100% tariffs to Chinese goods by Washington. These developments are more likely to increase risk aversion in the world, and reduce the demand of risk-sensitive currencies such as the New Zealand dollar. Meanwhile, the US economic[24] future is being clouded by the current government shutdown in the US that is pressing on the Greenback slightly to the downside.

Analysts[25] indicate that going forward, traders will be keen on the US retail sales and preliminary data on unemployment claims later this week to get additional guidance. The expectations of a guarded Fed might be solidified by softer readings, which might further support NZD/USD[26] in the short term. But the continuous deflation risks in China and larger trade related headwinds could restrain sustained rising, with the two remaining susceptible to the 0.5800 resistance threshold over the medium term.

EUR/USD Advances Amid Dovish Fed Outlook

The EUR/USD pair extended its advance and traded towards 1.1620[27] mark in Wednesday’s Asian session, supported by broad-based weakness in the US dollar following dovish comments from Fed Chair Jerome Powell. Recent sluggishness in the hiring process is a growing threat to the US economy, the Fed[28] chief has underscored, strengthening the anticipation of additional monetary stimulus. Market observers[29] believe that the market will now expect a 25-basis-point reduction at the next Fed meeting, and another in December that has strained Treasury yields and burdened the greenback.

Market reports[30] point out that the late release of major US economic data, such as the September Nonfarm Payrolls report, has further constrained directional conviction of the dollar. The focus now shifts to the Consumer Price Index (CPI)[31] data to be released on October 24 that may give some insight on the inflation trends before the October 2829 policy meeting of the Fed. Any negative unexpected inflation would enhance the anticipation of aggressive rate reductions, further diminishing the US dollar in the short run.

Market reports[32] indicate that in the Eurozone, the single currency received another boost as the French Prime Minister Sebastien Lecornu stated the 2023 pension reform would be suspended until he reassessed it after the 2027 French presidential election, removing political risk in France. Meanwhile, investors await the release of Eurozone Industrial Production[33] figureics in August, which could provide hints regarding the recovery of manufacturing in the bloc amid low economic momentum.

Technically, analysts[34] indicate that the EUR/USD is supported above 1.1580 and a sustained break above 1.1650 can open up the 1.1700 area. Nevertheless, the medium-term perspectives are not optimistic because traders continue to balance between the dovish Fed expectations and the continuing growth apprehensions within the Eurozone[35]. Today’s scheduled speeches by Fed officials[36] might create a new wave of volatility and challenge the recent gains of the pair.

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