GBP/USD Steadies as Dollar Gains on Optimism

The GBP/USD pair traded near 1.3150^[1] in Monday's early Asian hours, trimming recent losses after snapping a three-day decline. The rebound in the pair is believed to be limited with a resurgence in the US dollar due to optimism that the protracted US government shutdown^[2] could end soon. Market reports^[3] indicated that centrist Senate Democrats have agreed to support a deal to reopen the government, a move to support the greenback and dampen the upside potential of the pound.

Market commentators^[4] noted that better risk sentiment associated with a possible resolution of the shutdown has given the US dollar an upward boost in the majors, with safe-haven flows cooling off. According to the proposed arrangement, federal employees^[5] would get back payment and hold-up transfers to most states would be resumed, a step that would stabilise near-time US economic performance. Nevertheless, the US labour market^[6] is not very robust because current poor employment numbers still haunt the overall perspective. The current market is said to be giving a 66 percent chance of a 25-basis-point rate reduction by the Federal Reserve (Fed)^[7] in December (as shown on the CME FedWatch Tool), reflecting why the markets are now dovishly biased, which may limit the strength of the dollar in the medium term.

Market reports^[8] indicate that the Bank of England (BoE) has in the previous week chosen to keep the rates unaltered at 4.0 and has been cautious in view of the forthcoming UK Autumn Budget. Governor Andrew Bailey^[9] indicated that the cuts in the rates would be experienced soon, but the policymakers emphasized that the future actions would depend on the inflation patterns. Pre-Christmas rate cut^[10] is also being priced in by the market as there are mounting concerns on the decelerating economic momentum of the UK.

Analysts^[11] suggest that GBP/USD will have support in the short term at 1.31201.3100 but gains might be hampered by resistance around 1.3200. The focus will shift to the future price data of US CPI^[12] and retail sales, which will possibly affect the expectations of the Fed rate, as well as the continuation or loss of momentum of the dollar before the middle of November. The GBP/USD exchange rate is expected to remain volatile in the near term as traders weigh the contrasting monetary policy outlooks between the BoE and the Fed.

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EUR/USD Extends Losses Amid Shifting Policy Outlook

The EUR/USD pair extended its decline and traded near 1.1550^[13] in Monday's early Asian trading after three consecutive sessions of losses. The pair is believed to be under pressure since the US dollar was on a roll after news that the historic US government shutdown^[14] may finally come to an end. An agreement between moderate senate democrats to reopen the government and finance^[15] some of the agencies until the end of the year relieved investor anxiety and temporarily sustained the greenback.

Market commentators^[16] indicate that even with this slight US dollar strength, the overall picture is still marred by the economic effects of the long-term shutdown. The secretary to the US treasury Scott Bessent^[17] cautioned that the impact of the shutdown continues to increase, despite a likelihood of the inflation pressures slowing down in the months ahead. Meanwhile, the University of Michigan Consumer Sentiment Index^[18] dropped by a significant margin last week to 50.3 in November, the lowest since the middle of 2022, indicating an increasing pessimism among the consumer population and raising the risk that household spending, which has been a key US economic pillar, may soften.

Market reports^[19] point out that the euro is still favoured by a relatively stable stance of the European Central Bank (ECB) in Europe. Although there has been a warning on inflation by policy makers such as Francois Villeroy de Galhau and Joachim Nagel^[20], it is hoped that the current rates will be sustained over a long period by the ECB. The expectation of rate cuts in markets has diminished and only a 45% chance of easing by September 2026 is an indicator of continued policy divergence between the markets and the US Fed^[21]. Analysts^[22] point out that going forward, the traders will keep an eye on future releases of the US, such as CPI and retail sales among others, to continue guiding it. Poor performances may constrain US dollar gains and enable the EUR/USD^[23] to stabilise above the near term support levels of 1.1520 whilst enduring strong performance of the dollar may curtail efforts of recovery to the 1.1600 resistance level. The EUR/USD exchange rate remains a key focus for investors, as market sentiment continues to hinge on developments surrounding US economic data and policy signals from the Fed.

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GBP/AUD Steadies Amid Mixed Global Market Sentiment

The GBP/AUD pair traded broadly steady around 2.0140^[24] in Monday’s European session, as investors weighed a mix of global risk sentiment and diverging monetary policy expectations. The pound is believed to have received a slight support through increased market risk-taking and the Australian dollar^[25] has also stood its ground following the stable commodity prices and expectation of slow demand in China. The absence of new domestic stimulus^[26] ensured that the couple was limited to a very thin margin, and traders were waiting until the end of this week when more macroeconomic data became available to get a better sense of direction.

Market reports^[27] point out that the short-term performance of the pound is linked to the overall performance of the dollar and the mood of global growth. The weaker than expected consumer sentiment data in the US last week that came at a low of three years has increased expectations that the Fed^[28] will be careful next year through early 2026. The indirect effect of softer US figures is that this will favour the pound in that easing US yields will weigh on the dollar^[29] and give favourable relative conditions towards higher-betta currencies like GBP and AUD. Nevertheless, continued doubts about the growth prospects of the UK and slow productivity figures still limit the positive sterling momentum.

Market commentators^[30] indicate that the Reserve Bank of Australia (RBA) continues to adopt a data-dependent strategy on the Australian side following the recent inflation data, which was slightly above the forecast. It is expected that the RBA^[31] will extend the readiness of markets to hold rates high in the short-term offering short-term support to the Aussie. Another tailwind that has been a mild one to the currency is the increasing iron ore prices and enhanced trade data in China^[32].

Analysts^[33] suggest that GBP/AUD can be supported in the short-term around 1.9100 and resisted around 1.9220. Any indication of declining demand will see traders pay close attention to future US inflation and retail sales announcements because any indication of weakening demand will shift sentiment in favour of the pound, but risks in the medium-term will be skewed to weakening Australian dollar^[34] resilience. The GBP/AUD exchange rate is likely to remain range-bound in the near term, reflecting the balance between diverging monetary policies and shifting global risk sentiment.

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NZD/USD Rebounds Amid Improved Chinese Inflation Outlook

The NZD/USD pair rebounded modestly to trade near 0.5630^[35] in Monday’s Asian session, recovering from a seven-month low of 0.5605. The upside is believed to have been underpinned by unexpectedly robust Chinese inflation^[36] news, which assisted in lifting the mood to risk-sensitive exchange rates, including the New Zealand dollar. The October CPI^[37] was 0.2% per annum, increasing over the market expectations of 0.0%, and producer price falls decreased, indicating that domestic demand in the major export market of New Zealand is improving.

Market commentators^[38] note that market support in favour of the Kiwi was boosted further with the US-China trade tension subsiding after Beijing temporarily lifted the ban on some of its so-called dual-use exports to the US. The relocation was interpreted as a good step towards the stabilisation of bilateral relations^[39], increasing the risk appetite and giving the commodity-linked currencies a near-term tailwind. Nevertheless, NZD/USD gains are constrained with the ongoing greenback strength.

Market reports^[40] point out that the US dollar has been supported after it was reported that there had been a rise in talks to avoid a government shutdown as this would enhance the short run fiscal balance. Market participants are also on the alert before the forthcoming US inflation data and retail sales data^[41] later this week, which may affect speculation on the next action by the Fed. The robust US economy can continue to maintain high Treasury yields^[42] and restrict the future gains of NZD/USD in the short run.

Analysts^[43] technically suggest that NZD/USD will have first resistance at 0.5650, and the support at 0.5600. A prolonged break out of the resistance level might set the stage to 0.5700, yet the larger perspective is still skewed towards the negative since conflicting monetary policy and a strong US dollar is still keeping the pair at bay in the long-term. The NZD/USD exchange rate remains sensitive to shifts in global risk sentiment and economic data, with traders closely monitoring developments in China-US for further direction.

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