Sterling Diverges Against Euro and Dollar
GBP faces pressure amid mixed data and central bank speeches
The GBP/EUR pair trades with a mild downside near €1.2035 early Thursday in Europe, ahead of the Eurozone Q3 GDP release. Bank of England (BoE) Governor Andrew Bailey and European Central Bank (ECB) President Christine Lagarde are set to speak later in the day.
The UK unemployment rate unexpectedly rose to 4.3% for the three months ending September, pressuring the Pound. Analysts at XTB suggest this may increase market expectations of a BoE rate cut.
Meanwhile, BoE Chief Economist Pill remains cautious, citing "sticky" wage growth and ongoing inflation concerns, despite recent disinflation. His hawkish tone may limit further GBP declines. Traders look to Bailey’s speech for more insight into UK rate direction.
The GBP/USD pair extends the decline to near $1.2685 during the Asian trading hours on Thursday. A rally in the US Dollar to the highest level since November 2023 weighs on the major pair.
No Major Data
Speeches:?
9:00pm - Bailey Speaks?
EUR/USD faces pressure amid widening swap spread and rising risk premium
The wide short-term swap rate spread between USD and EUR supports much of the EUR/USD selloff. Adding other market factors—like equities and commodity prices—suggests a growing risk premium exceeding 1.5%.
Does this imply a 1.5%+ EUR/USD correction is due? Not necessarily. Since November 5, it's believed a Euro-negative risk premium will be the new norm, driven by risks to the Eurozone linked to Trump’s foreign and trade policies. Historically, a 1.5% premium is moderate, and it could easily rise above 4% if markets start factoring in more geopolitical or protectionism risks.
While a EUR/USD correction higher is possible, expectation is rallies will attract sellers, and a sustained move above $1.0700 seems unlikely. Today, the Eurozone calendar features revised Q3 GDP, employment figures, and ECB meeting minutes, which may include dovish signals. However, markets may wait for more data, like PMIs or lower inflation, before considering a 50bp cut in December.
No Major Data
Speeches:
7:00pm - Lagarde Speaks
Strengthening Dollar outlook for 2025 amid Trump’s policy agenda
Focus on?a strengthening Dollar for 2025, supported by Trump’s domestic and trade policies. Recent price movements suggest this second Trump term may bring brief Dollar dips (such as after the recent CPI release) that could serve as entry points for long-term USD positions.
Republicans have secured control of the House, enabling Trump to drive his agenda through at least the 2026 midterms. Cabinet picks have largely consisted of Trump loyalists, indicating more centralized decision-making. However, the election of free-trade advocate John Thune as Senate Republican leader could introduce some friction with Trump’s protectionist stance.
While a strong Dollar is expected next year, short-term USD positioning appears stretched, leaving room for a potential, albeit brief, Dollar correction. Today’s PPI data could be a catalyst, especially given expectations for a modest re-acceleration in headline PPI. Any downside surprise might weaken the Dollar. Fed Chair Jerome Powell’s upcoming speech in Dallas is another key event, where cautious remarks on trade policies could be perceived as dovish, adding pressure to USD.
Any USD pullback may struggle to bring DXY below 106.0, as Dollar-buying interest is expected on dips.
Data:?
1:30pm - Core PPI m/m,?PPI m/m?& Unemployment Claims?
Speeches:
8:00pm - Powell Speaks