Cautious Dollar, Resilient Euro and Cooling UK Inflation Shape FX Sentiment.

• USD – Is steady and may gain slightly, but lacks a large directional driver for now.

• EUR – Is relatively better positioned, benefiting from its steady policy backdrop and USD softness, though major gains appear unlikely short term.
  

• GBP – Remains under pressure and faces downside risk unless UK data surprises.

USD:

The dollar remains in a cautious but relatively firm position. The U.S. Dollar Index is trading near its recent highs, though it remains confined within a descending channel suggesting limited upside for now. the Federal Open Market Committee minutes and the backlog of U.S. economic data (post-shutdown) are creating a degree of uncertainty. Markets are watching for any clues of whether the Federal Reserve will lean towards cutting rates or holding off. With risk sentiment still a little fragile, safe-haven support for the dollar remains in the background. At the same time, lack of fresh bullish drivers is keeping the dollar from a strong breakout.

---

EUR: 

The euro is benefitting somewhat from relative USD softness, as the U.S. government shutdown and data delays weigh on dollar sentiment. The European Central Bank has signalled a relatively stable policy path, and eurozone inflation 2.1% along with modest growth keeps expectations of imminent cuts lower. The euro’s risk-reward appears better positioned than the pound’s in the near term. It may hover sideways to modestly higher, provided USD weakness persists and no major shock hits eurozone fundamentals.

---

GBP: 

Sterling is slightly softer this morning even though UK headline inflation came in marginally hotter than anticipated. CPI eased from 3.8% to 3.6%, with a renewed uptick in food prices contributing to the smaller-than-expected decline. Core CPI, which strips out volatile components, matched expectations at 3.4%. More importantly for policymakers, services inflation, the measure most closely watched by the Bank of England, slipped more than forecast to 4.5%. While the overall inflation picture remains uncomfortable, the underlying improvement keeps the door open for the BoE to deliver a rate cut at its meeting next month.

Economic Calendar