Mixed Inflation and Policy Signals Drive Divergence Across USD, EUR, and GBP.

• USD – Remains solid, supported by safe-haven flows and uncertainty, but lacks strong momentum for a breakout.

• EUR – Is in a moderate position of strength, aided by relative stability and dollar uncertainty.
  

• GBP – Is the weaker link for now: mixed inflation data, looming rate-cut expectations, and fiscal policy watch are weighing on sterling.

USD:

The dollar is trading in a relatively firm posture, albeit without strong momentum toward a breakout. The U.S. Dollar Index remains near recent highs, though technical charts suggest it is contained within a descending channel—hinting upside may be limited in the near-term. Markets are focused on several potential catalysts which are the upcoming release of the Federal Open Market Committee minutes and the backlog of US economic data stemming from the recent government shutdown. These inputs are expected to give clues on whether the Federal Reserve will lean toward another rate-cut or hold back.

---

EUR: 

The euro seems to be in a relatively favourable position compared with the dollar. As the dollar’s appeal is dampened by data uncertainty and the US shutdown, the euro is benefitting modestly. Meanwhile, the European Central Bank has maintained a more predictable policy path, and Eurozone inflation (around 2.1%) plus only modest growth mean expectations for imminent rate cuts are muted.
In this environment the euro’s risk-reward appears more balanced: it may drift sideways to modestly higher, provided that USD remains under some pressure and no major shocks hit the euro-area. EUR could outperform modestly against USD (and potentially GBP) in the near term, but the lack of strong positive catalysts means gains may be limited unless the broader risk backdrop shifts.

---

GBP: 

Sterling is showing signs of softness this morning, despite UK headline inflation coming in slightly higher than expected. UK CPI fell from 3.8 % to 3.6 %, with food inflation ticking up again. Core CPI came in at 3.4 % in line with expectations. Importantly, services inflation, often viewed by market‐participants as the key measure for the Bank of England, cooled more than expected to 4.5 %.
While the inflation picture remains challenging for policymakers, the moderation in services inflation helps keep the door open for a rate cut next month. However, without a meaningful positive surprise or fiscal clarity, sterling has limited upside.

Economic Calendar