📊 FX Market Update: Dollar Strength Returns as Euro Weakens and Sterling Gains.

USD – The dollar is strengthening again this morning despite softer-than-expected inflation data, supported by falling European markets and rising US stock futures. Attention is now turning to US manufacturing data, jobless claims, and tomorrow’s key employment figures.

EUR – The euro continues to weaken against the dollar, with concerns over France’s growing budget deficit adding further pressure. Markets are now looking to comments from key ECB policymakers for clues on future interest rate decisions.

GBP – Sterling has strengthened to its highest level against the euro since July, supported by dovish ECB comments and renewed discussion around the UK potentially rejoining the EU. However, the dollar’s recent recovery has erased most of sterling’s gains against the greenback, with Bank of England speeches in focus today.

USD: The dollar is once again pushing higher this morning, despite yesterday’s softer-than-expected PCE inflation report. Falling European equity markets and rising US stock futures suggest investors are increasingly favouring the US economic outlook over Europe. Today’s focus is on the ISM manufacturing index, expected at 55.0, and weekly jobless claims, forecast at 200k. Several Fed officials are also due to speak, including Waller, Jefferson, Bowman, Barkin, Collins, and Schmid. However, tomorrow’s non-farm payrolls report is the main event of the week, as the figures could significantly influence expectations around the Fed’s next interest rate decision.

GBP: Sterling has strengthened to its highest level against the euro since July, following dovish comments from ECB President Lagarde and renewed suggestions from the UK Prime Minister about the possibility of rejoining the EU. GBP/USD also rallied sharply earlier in the week, although the dollar’s recovery this morning has erased most of those gains. With little major UK economic data due today, attention will turn to speeches from Bank of England officials Pill and Mann for further clues on the outlook for UK interest rates.

EUR: The euro continues to fall against the dollar, with the greenback’s recent strength carrying into October. Additional pressure has come from concerns surrounding France’s growing budget deficit, following the Prime Minister’s apparent difficulty in addressing the country’s financial challenges in the proposed 2027 budget. This has contributed to a sell-off in French government bonds. Today, markets will be watching comments from three key ECB policymakers – Nagel, Lagarde, and Schnabel – for further guidance on the future direction of eurozone interest rates.

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