Eurozone Inflation Declines Ahead of Key ECB Rate Decision
GBP
GBP/USD is lower, currently trading at 1.2980 (interbank), its lowest level since 20 August. GBP/EUR remains steady at 1.1961 (interbank).
Yesterday’s data revealed that the UK Consumer Price Index (CPI) fell in September to its lowest reading since April 2021, increasing the likelihood of a BoE interest rate cut in November.
Additionally, Finance Minister Rachel Reeves is set to unveil her first tax-and-spending plans on 30 October, just over two years after former Prime Minister Liz Truss caused turmoil in the UK bond market with her tax-cut proposals.
Speculation about increased government borrowing under Prime Minister Keir Starmer's Labour government, which returned to power in July after 14 years in opposition, has contributed to the recent uncertainty.
All eyes are now on the UK Retail Sales data due tomorrow.
No significant events are scheduled for today.
EUR
EUR/USD is currently trading lower at 1.0854 (interbank).
The euro continues to weaken against the US dollar ahead of today’s pivotal ECB interest rate decision, with the currency pair having fallen by around 3% from its September high.
This morning Eurozone inflation (CP) for September was finalised at 1.7% annually, down from 2.2% in August, while core inflation (excluding energy, food, alcohol, and tobacco) was finalised at 2.7%, slightly lower than August’s 2.8%.
Today, investors widely anticipate the ECB will cut rates by 0.25%, bringing the deposit rate down to 3.25%. However, if the ECB strikes a more hawkish tone than expected, the euro could rebound, as markets have already priced in the expected rate cut.
While the market is hopeful for a quick series of rate reductions, the ECB is likely to take a gradual approach to policy easing.
Today’s Events (GMT):
10:00 - CPI (Sep) – Actual: 1.7% vs Forecast: 1.8%
10:00 - Core CPI (Sep) – Actual: 2.7% vs Forecast: 2.7%
13:15 - Rate Decision and Press Conference (Oct) – Forecast: 3.25%
USD
The Dollar Index, which tracks the currency against a basket of other major currencies, is trading at 103.64.
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The U.S. dollar remains strong as traders lower expectations for further aggressive rate cuts from the Fed.
Market participants anticipate that the Fed will only cut rates moderately for the remainder of the year, as fears of a U.S. economic downturn have been tempered by solid growth in Nonfarm Payrolls (NFP) and the Services PMI data for September.
Speculation is also growing around the potential re-election of Donald Trump in the U.S. presidential election on 5 November, with expectations that his win could lead to higher tariffs on imports from Asia and Europe, tax reductions, and looser financial conditions that may benefit the US dollar.
Today’s focus is on U.S. Retail Sales, expected to have risen by 0.3%.
Today’s Events (GMT):
13:30 - Initial Jobless Claims – Forecast: 241K
13:30 - Retail Sales (Sep) – Forecast: 0.3%
13:30 - Core Retail Sales (Sep) – Forecast: 0.1%
14:15 - Industrial Production (Sep) – Forecast: 0.04%
CAD
USD/CAD is trading at 1.3781 (interbank) during today’s session.
The Canadian Dollar is under pressure following the latest inflation report for September, which has fuelled expectations for a 50 basis-point rate cut by the BoC next week.
The annual inflation rate dropped to 1.6% in September, its lowest since February 2021, falling below the BoC’s 2% target.
Sluggish economic growth, declining inflation, and rising mortgage costs are reinforcing the case for deeper rate cuts. The BoC is now expected to lower its policy rate to 3.25% by the end of 2024 and 2.25% by the end of 2025, down from earlier estimates of 3.75% and 3.0%.
Meanwhile, oil prices remain flat, with Brent crude at $74.18 and West Texas Intermediate crude at $70.37 per barrel.
No significant events are scheduled for today
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