FX Market Update #11
Jonathan Cusimano
Head of FX and Treasury @Statrys I Helping 1000+ SMEs stay on top of the Payment Game
For the week of October 21 to October 26, here is a summary of market news that may help you gain clarity and make informed decisions in the foreign exchange market.
If there's a particular point that interests you or if something is missing from this newsletter, feel free to let me know by commenting on this article!
EUR/USD
The pair has lost over 4% in October, with the U.S. election and more persistent inflation than expected as the backdrop. Moreover, the ECB might lower its key interest rates by 50 basis points at its December meeting, while the market is currently pricing in only 32 basis points of cuts across the Atlantic. This divergence is weighing on the euro. The two-week implied volatility (future volatility) is also at its highest since 2020 during the onset of Covid-19, indicating an increased demand for protection against a euro decline in the wake of the presidential election.
AUD/USD
Michelle Bullock warned markets in the RBA's annual report that inflation levels would remain elevated for another year or two. The report shows that the RBA estimates inflation will reach 2.9% in December 2025 and then 2.6% in December 2026. AUD/USD has lost nearly 5% in October, and the narrowing interest rate differential will be beneficial for the Australian dollar.
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GBP/USD
The pound sterling is facing a similar fate, with its value melting by 4% in October. The UK budget will be voted on this Wednesday by the Labour party since their rise to power, and the market currently doesn't seem enthusiastic about it, as hedge funds (leverage funds) and asset managers have been continuously selling the pound since early September.
Key Events to Watch This Week: