Dollar Holds Firm as Fed Signals Caution; Pound Pressured, Euro Slips Toward Key Support.

• USD – Stronger tone, benefitting from reduced rate-cut expectations and safe-haven flows.

• EUR – Holding for now but vulnerable, caught between dollar strength and euro-zone policy/growth risks.

• GBP – Under pressure from weak UK fundamentals and growing BoE easing expectations.

USD:

The U.S. dollar is hovering near a three-month high, supported by a retreat in expectations for near-term rate cuts by the Federal Reserve. Traders now price roughly a 65–71% chance of a December cut, down sharply from 90% recently. With the U.S. federal data pipeline disrupted due to the shutdown and Fed officials’ views more divided, the dollar is benefitting as markets favour a “no-surprise” scenario and safe-haven flows.

If the Fed continues to emphasise caution or signal that rate cuts are farther off, the dollar may extend its strength. A surprise in U.S. data (e.g., weak jobs/inflation) or improvement in global risk sentiment could reverse or soften dollar gains. Key events ahead come from U.S. ISM/PMI prints, Fed speeches, and progress in the U.S. government shutdown resolution.

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EUR: 

In Europe, sentiment remains fragile as the bloc contends with weak productivity and sluggish domestic demand. The Eurozone Composite PMI hovering near 50.2 offers faint signs of stabilization, but confidence remains low amid persistent fiscal debates. ECB President Christine Lagarde recently acknowledged that growth risks are skewed to the downside, while service-sector inflation remains stubbornly high, a combination that traps policymakers in a tight but cautious position. The central bank’s reluctance to cut rates early keeps real yields positive in Europe, but insufficient to attract meaningful capital inflows compared to the U.S., where nominal yields remain higher.

On the upside, if euro-zone data surprises positively or the ECB signals less dovishness, EUR could rebound. On the downside, further USD strength, weak euro-zone economic prints, or dovish ECB commentary could push EUR/USD lower. Technical indicators suggest downside risk remains.

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GBP: 

The pound is under ongoing pressure, as markets increasingly price in possible rate cuts by the Bank of England and express concern over the UK’s growth and fiscal outlook. With UK Chancellor Rachel Reeves speaking this morning, many believe further tax rises loom for the UK, although she did not explicitly say this would be the case as she is ‘committed to her fiscal rules’. The GBP continues to struggle against its peers.

Without a strong UK data surprise or hawkish BoE comments, sterling is likely to remain sideways or weak. A BoE signal of further cuts, or deepening fiscal concerns, could push GBP lower. Conversely, stronger than expected UK labour or inflation data could provide a rebound.

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