US Dollar Struggles As Markets Turn to Central Bank Signals

Impact on GBP:

Sterling maintaining strength for the moment

The Pound’s recent strength has partly relied on the “no news is good news” narrative, as quiet calendars allowed markets to look elsewhere for easing bets while happily keeping the Bank of England in the group of relatively hawkish outliers.

There is slight?concern that the Pound will soon face a correction as UK figures start to point to more urgency for easing, although this week may just be too early for that. Second-quarter GDP was revised slightly lower to 0.5% quarter-on-quarter this morning, but there isn’t a major UK release until the 15 October jobs figures, with only the partial exception of the Bank of England’s Decision Maker Panel survey.

With that in mind, together with the risk of Eurozone inflation cementing ECB easing bets, GBP/EUR?will likely test the €1.2045 support level over the next few days.

No Major Data

Impact on EUR:

Inflation likely to solidify ECB rate cut expectations

French and Spanish inflation figures were lower than expected on Friday, at 1.2% and 1.5%, respectively, with Spanish core CPI slowing from 2.7% to 2.4%. This has led markets to almost fully price in a 25bp European Central Bank rate cut in October, driven by the lower inflation data and reports of increased pressure for continued easing from Governing Council members.

Recent communications indicate a growing divide between hawkish and dovish factions within the ECB. Upcoming data, including German CPI and Eurozone-wide figures, could be crucial for an October cut.?Insights from ECB President Christine Lagarde’s speech today and comments from other officials later this week may also impact expectations. If Eurozone inflation remains subdued and US payrolls support a 50bp Fed cut, the Euro may weaken against the Dollar as markets consolidate expectations for continued ECB cuts.

A rise to $1.1200 in EUR/USD could occur if the USD weakens, but without strong Eurozone inflation data, significant movement higher is unlikely. A stable $1.1100-1.1200 trading range is expected for early October.

Data:?

13.00: German CPI figures

14.00: ECB?President Lagarde speech

Impact on USD:

Potential downside risks from this week's data for the Dollar

China's measures to support the housing and stock markets have prompted a surge in Chinese stocks ahead of the National Day holiday, with the CSI index up 7% and the Hang Seng rising 3%. This boost is contributing to a softer USD as safe-haven demand decreases.

This week’s US economic calendar features the JOLTS jobs openings report tomorrow, followed by ISM manufacturing data expected to remain around 47-48. The key event will be Friday’s jobs report, with expectations for a softer payroll number (115k) and an increase in the unemployment rate to 4.3%. If these expectations hold, a weaker Dollar is anticipated as the market adjusts to potential Fed rate cuts in November or December.

Additionally, the vice-presidential debate between JD Vance and Tim Waltz will take place tomorrow, with potential implications for polling in Midwestern swing states.?

Data:

18.00:?Fed's Chair Powell speech

Get More Value for Your Business with VFX

Need solutions for your Business’ foreign exchange needs?

Stay up to date with all of the latest currency news, our daily market updates provide insight into major currency movements helping your business make international transactions at the right time.

At VFX, our team of expert brokers support businesses in navigating through the ever-changing currency market every single day, making sure that potential FX risk is managed through the use of top-of-the-art data, analytics and tools.

If your business is looking to mitigate FX risk, then please contact our team today or call +44 (0) 20 7959 6900.