Dollar Dominance Prevails Amid Market Shifts

Impact on GBP:

Sterling steady as markets eye UK budget

The Pound Sterling (GBP) consolidates near $1.2950 against the USD in today's session, with the GBP/USD pair trading sideways. Investors are focused on upcoming U.S. economic data and Wednesday's UK Autumn Forecast Statement. Sterling shows modest strength against its peers ahead of Labour’s first budget, which is expected to avoid major spending increases due to persistent inflation.

According to Sky News, the government is set to honour its commitments, ruling out income tax or national insurance hikes but may increase employers’ national insurance by up to 2 percentage points. Measures to improve housing affordability are also anticipated.

Growing expectations for the Bank of England to cut interest rates in November and December may weigh on the Pound. BoE Governor Andrew Bailey hinted at this in recent comments, stating, “Disinflation is happening, I think, faster than we expected it to,” while noting uncertainty about structural changes in the economy.

No Major Data

Impact on EUR:

EUR/USD faces pressure as rate differentials widen despite lower oil prices

The Euro has struggled this month, though today’s drop in oil prices offers limited relief. A key challenge for EUR/USD remains the widening rate differential, with the two-year swap spread at 158 basis points -?the widest since April.

Looking ahead, Eurozone data will be closely watched, starting with Wednesday’s third-quarter GDP, expected to show weak growth at 0.2% and a potential technical recession in Germany. October’s CPI data follows, with headline inflation likely below 2.0% and core inflation dipping to 2.6%. These reports reinforce expectations that the ECB remains dovish, with the ESTR curve pricing in a 35-basis-point rate cut for December, possibly shifting to 50 basis points on soft Eurozone data or a U.S. Republican win.

In the near term, EUR/USD is expected to consolidate between $1.0765-1.0850.

No Major?Data

Impact on USD:

Dollar set to maintain gains this week

The DXY Dollar index has reached its highest level since early August, despite the Fed's unexpected 50bp rate cut in September. This Dollar strength is driven by macroeconomic divergence, particularly a bearish reassessment of the Eurozone, and positioning for potential Republican success in the upcoming elections. Recent polls show Donald Trump gaining marginally, but his lead in key swing states remains within the margin of error.

This week's U.S. data, including jobs and inflation figures, is unlikely to significantly weaken the Dollar. Key reports include JOLTS job openings on Tuesday, the October payrolls report on Friday, and September's core PCE price data, which could show a 0.3% month-over-month increase. Additionally, Thursday's GDP report is expected to reveal strong annualised growth of over 3%, led by consumption.

Overall, while the Dollar has surged this month, it's unlikely to reverse its gains soon, with the DXY expected to remain in the 104-105 range.

No Major Data

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