Pound Under Pressure, Dollar Gains Strength.

  • GBP/USD Retreats: The Pound fell back to around 1.3070, failing to hold above 1.3100 as markets await economic updates.
  • Dollar Strengthens: The US Dollar hit a 7-week high, supported by Middle East tensions and hawkish Federal Reserve minutes.
  • GBP/USD Outlook: Scotiabank warns of a potential test of 1.30 support, with a risk of a deeper drop towards 1.27-1.28 if the Pound weakens further.
  • UK Budget Speculation: Markets are speculating Chancellor Reeves may change fiscal rules to allow more borrowing, raising both concerns over debt and optimism for growth.
  • EUR Gains Support: The Euro found strength from better-than-expected German trade data, while GBP/EUR remained steady amid uncertainty around the UK’s Autumn Budget.

GBP (Pound Sterling): The Pound to Dollar exchange rate (GBP/USD) once again failed to maintain a position above 1.3100, slipping back to near 1.3070 after the New York open. The Pound seems stuck in neutral as markets await fresh economic data. Meanwhile, the dollar index (DXY) hit a new 7-week high, just below 102.80, as tensions in the Middle East continue to bolster the US currency. Scotiabank points out that while the Pound has avoided a major test of support so far, there’s a risk of further downside. The bank notes, “The broader undertone in GBP/USD remains negative, with a test of 1.30 support as the main risk ahead. A sustained move below 1.30 could lead to a deeper fall towards 1.27/1.28.”

Additionally, UK markets are eyeing the October 30th budget with heightened speculation that Chancellor Rachel Reeves may adjust the definition of national debt, allowing for increased borrowing without breaching fiscal rules. ING highlights that the UK’s five-year sovereign CDS remains stable, suggesting little risk premium in UK assets, but warns, “The dollar is likely to stay stronger leading up to the US elections in November. This suggests we haven’t yet seen the lows for GBP/USD, and a dip towards 1.29 seems probable in the coming weeks.”

USD (US Dollar): A hawkish tone in the Federal Reserve’s September meeting minutes provided a late boost to the US Dollar on Wednesday. While most Fed officials backed a 50 basis points (bps) rate cut, a broader consensus emerged that this move wouldn’t commit the Fed to a fixed pace for future cuts. Some participants favored a smaller 25 bps reduction, while a few others mentioned they could have supported that move. The US inflation forecast points to a potential softening, with annual CPI inflation expected to drop to 2.3% in September from 2.5% in August. Core CPI, excluding food and energy, is projected to rise 0.2% monthly. Ahead of this crucial data, the USD Index remains in a consolidation phase, while US stock futures trade slightly lower.

EUR (Euro): The Pound Euro exchange rate (GBP/EUR) saw some volatility on Wednesday as markets weighed the impact of the UK’s upcoming Autumn Budget. At the time of writing, GBP/EUR hovered around €1.1934, virtually unchanged from the start of the day. With no significant UK data, traders focused on the anticipated budget, which is expected to bring tax hikes and spending cuts. However, reports suggest that Chancellor Reeves may revise fiscal rules, allowing for more borrowing to support infrastructure investment. This has sparked concerns over rising debt but also optimism for potential growth. The Euro, meanwhile, found early support on Wednesday, buoyed by stronger-than-expected German trade data.

*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.