Daily currency update
This morning’s GDP data confirmed sluggish growth in the UK economy, reinforcing the Bank of England’s cautious stance. With inflation seen as having “peaked” and unemployment edging up to 5 %, markets are increasingly pricing in a BoE rate cut as early as December. Sterling softened further as investors anticipate policy easing ahead, reducing the pound’s appeal versus higher-yielding peers.
Isabel Schnabel of the European Central Bank said that inflation risks in the euro zone are “tilted a little bit to the upside”, noting food-price inflation remains strong and disinflationary pressures aren’t sustained. Boris Vujčić, another ECB policy-maker, stated that risks around the inflation forecast are currently balanced and that growth has proven more resilient than expected, a signal that rates are likely to remain unchanged for now. The commentary supports the view that the euro might strengthen further, as stable or rising inflation combined with no imminent rate cuts tends to bolster a currency’s appeal.
The Federal Reserve (Fed) is showing divided views on further rate cuts, with several members saying they won’t commit to easing as inflation remains elevated. Still, with the U.S. government shutdown nearing resolution, the dollar is gaining on a rebound in risk appetite and anticipation of renewed economic data. Overall: the dollar is in a holding pattern mixed signals lead to uncertainty, so FX traders may lean dollar‑weak until clearer Fed direction or employment data emerges.
Key movers
ECB officials are increasingly confident in the Eurozone economy with two policymakers saying this week that inflation risks in the euro‑area are “balanced” and growth has been stronger than previously expected. Meanwhile, ECB‑staff projections estimate euro‑area inflation averaging around 2.1% in 2025, then dipping to 1.7% in 2026 and rising again to 1.9% in 2027. Growth is projected at around 1.2% for 2025, with modest uptick expected in later years.
The BoE’s latest stance signals caution. Inflation is still above target, the labour market is softening, and growth remains subdued. Independent forecasts point to UK growth being upgraded to about 1.5% in 2025, with inflation gradually easing. In the short‑term, markets are watching weak labour data closely as a trigger for potential rate cuts. The UK economy is expected to slow in Q3 with forecasts around +0.2% quarter‑on‑quarter for three months to September.
Fed commentary remains mixed. While some policymakers urge caution about cutting rates prematurely amid elevated inflation, others are more open to easing if growth falters. On the forecast front, broader outlooks suggest US growth will face headwinds from tariffs and uncertainty, though no specific short‑term consensus number is available. However economists are suggesting the upcoming “Initial Jobless Claims” report in the US is around 227 000.
Expected Ranges
GBP/USD: 1.3100 – 1.3150 ↑
GBP/EUR: 1.1295 – 1.1345 ↑
EUR/USD: 1.1565 – 1.1615 ↑
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