GBP Surges, USD Slides, EUR Eyes Breakout.

  • GBP Surge: The Pound jumped after the BoE held rates at 5.00%, hitting a 30-month high vs. the dollar, supported by bullish technical trends and expectations of further gains against both USD and EUR.
  • BoE Outlook: Despite an 8-1 vote to keep rates unchanged, markets anticipate a 80% chance of a rate cut in November, with the BoE projecting inflation to drop to 2.5% by late 2024.
  • USD Weakness: The US Dollar Index (DXY) fell 0.5%, nearing a 2-year low due to fading US economic momentum and pressure from widening current account deficits and lower jobless claims.
  • EUR/USD Upside Potential: EUR/USD is close to breaking out of its range, with a weekly close above 1.1160 signaling a potential rally, driven by broader dollar weakness.
  • JPY Pressure: USD/JPY is expected to weaken further, with analysts eyeing a move towards 138, while the Bank of Japan’s FX market impact remains under scrutiny.

GBP:
The Pound soared after the Bank of England (BoE) held interest rates steady at 5.00%, with its hawkish stance standing out globally. While the GBP/USD pair hit a new 30-month high above 1.3300, it later corrected to 1.3250 as the dollar recovered. Despite the BoE’s decision aligning with market expectations, the Pound gained momentum, buoyed by the Federal Reserve’s aggressive 50 basis-point overnight rate cut. Analysts at Scotiabank noted a bullish alignment across short-, medium-, and long-term trends for Sterling, predicting further gains toward the 1.3330 resistance level, with potential to revisit the 1.35/1.40 range. Against the Euro, the Pound also surged to 8-week highs around 1.1910, nearing a 2-year high. Danske Bank emphasized the BoE’s cautious approach, expecting a continued decline in EUR/GBP due to the UK’s strong economic performance and tight credit spreads. Their forecast for GBP/EUR suggests further gains toward 1.2050. The BoE’s 8-1 vote favored keeping rates at 5.00%, with one dissent advocating a rate cut to 4.75%. Markets now anticipate an 80% chance of a rate cut in November. The BoE maintained its guidance that monetary policy must remain restrictive to curb inflation, projecting inflation around 2.5% by the end of 2024, slightly below its previous forecast.

USD:
The US Dollar Index (DXY) has dropped around 0.5% this week, edging close to its lowest point in two years. The fading strength of the US economy, recognized by the Federal Reserve’s pre-emptive 50 basis-point rate cut, has dampened the dollar. While the labor market remains a key driver of the dollar’s trajectory, lower-than-expected jobless claims data led to a temporary rebound. The dollar’s movement is also tied to the US yield curve, where a steepening trend signals a weaker dollar during the Fed’s easing cycle. Seasonal factors and a widening US current account deficit, now at 3.7% of GDP, are adding further pressure. Although the dollar has hovered within a two-year range, analysts suggest a breakout could be imminent, particularly if key support levels around 99.50/100 give way. Meanwhile, attention is on the Bank of Japan’s press conference, with questions raised over how FX markets are impacting prices more than before, potentially due to rising domestic wages. USD/JPY remains under pressure, with a move toward 138 likely in the coming weeks.

EUR:
After reacting to US jobless claims data, EUR/USD has returned to recent highs near 1.1180. This reflects broader dollar weakness, and the pair appears poised for an upside breakout, particularly with a weekly close above 1.1160, which signals potential for a strong rally. As the US economic cycle shifts, analysts believe a EUR/USD breakout is likely. Today, no major US data is expected, but investors are eyeing a speech from ECB President Christine Lagarde, which could impact the market. EUR/USD is expected to trade within a 1.1150-1.1200 range, with an upward bias. Meanwhile, EUR/CHF is gaining as risk sentiment improves and USD/CHF spikes when trading below 0.8400. However, analysts are cautious, noting that the Swiss National Bank may not deliver on the dovish expectations priced into its upcoming policy meeting.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.