Key Moves in GBP, USD, and EUR.

  • GBP Risk: The British Pound may weaken as inflation is expected to fall below the BoE’s 2.0% target, driven by lower oil prices, which could prompt quicker interest rate cuts.
  • Fuel Prices Impact: Lower motor fuel prices have significantly contributed to the drop in UK inflation, though oil prices have recently rebounded.
  • Mixed US Data: Higher-than-expected CPI inflation was offset by a rise in jobless claims, leading to limited market reaction and no immediate dollar rally.
  • External Factors Supporting USD: Oil price volatility and geopolitical tensions in the Middle East are helping to support the dollar in the short term.
  • EUR/USD Stability: EUR/USD remains stable but vulnerable to downside risks, with China’s upcoming stimulus announcement and ECB’s expected rate cut likely influencing future movements.

GBP:
The British Pound faces potential challenges next week as inflation dips below the Bank of England’s (BoE) 2.0% target. Economists predict that when September’s inflation figures are released, they will reflect the drop in global oil prices from the summer, bringing UK headline CPI inflation down to 1.8%. Bruna Skarica, Chief UK Economist at Morgan Stanley, suggests this lower inflation could push the BoE to speed up interest rate cuts. This could weaken the Pound Sterling, disappointing those hoping for a stronger currency. Robert Wood, Chief UK Economist at Pantheon Macroeconomics, attributes the inflation dip primarily to falling fuel prices, which had reached their lowest levels since 2021 but have since rebounded.

USD:
Recent US data has delivered mixed signals for the Federal Reserve and markets. While CPI inflation rose more than expected, jobless claims also increased, possibly due to weather disruptions. Despite this, the dollar did not rally as expected, as the focus remains on the labor market rather than inflation. The Federal Open Market Committee (FOMC) members seem largely unfazed by the hotter CPI, with only Raphael Bostic expressing caution about further rate cuts. Meanwhile, external factors, such as oil price volatility tied to Middle Eastern tensions, are providing near-term support for the dollar. The upcoming release of China’s stimulus measures may also impact global markets, though it’s unclear how much this will affect USD/CNY.

EUR:
EUR/USD has steadied in the 1.09-1.10 range, but downside risks remain, driven by the two-year USD swap rate gap and heightened geopolitical risks. Positive developments in China could help support the euro early next week, while the eurozone’s economic calendar remains quiet ahead of the European Central Bank’s (ECB) upcoming meeting. The market is fully expecting a 25bp rate cut, with little to suggest otherwise. In the UK, weaker-than-expected growth and industrial production data haven’t significantly impacted sterling, but some strength in UK services CPI next week could help push EUR/GBP above 0.84.

*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.