USD Dips, EUR Settles, and GBP Hits 30-Month Highs.

• USD Weakness: The US Dollar Index (DXY) stays under pressure around 100.35, weighed down by improved risk appetite from Chinese stimulus and expectations of a large Federal Reserve interest rate cut in November.
• Bearish Technicals: The DXY holds a bearish trend below its 100-day EMA, with the RSI supporting further downside. A break below 100.25 could lead to a drop toward key psychological levels.
• ECB’s Rate Outlook: European Central Bank (ECB) officials hint at a more likely rate cut in December rather than October, with gradual interest rate reductions expected through 2025.
• GBP/USD Highs: GBP/USD hit a 30-month high at 1.3340, but HSBC doubts sustained gains, predicting a drop to 1.25 by the end of 2025 due to UK vulnerabilities and dollar resilience.
• UK PMI Data: The pound had mixed results after UK PMI data showed a slight slowdown in services and manufacturing, though both sectors remained in growth territory, suggesting modest economic expansion.

USD:
The US Dollar Index (DXY) remains under pressure near 100.35 in early European trading on Wednesday. Improved risk sentiment, driven by new Chinese stimulus plans and increasing speculation about a significant interest rate cut from the US Federal Reserve (Fed) in November, has weighed on the DXY. Traders are also eyeing the release of US New Home Sales data for August and a speech from Fed Governor Adriana Kugler for fresh momentum.

From a technical perspective, the DXY is holding a bearish outlook, staying below the key 100-day Exponential Moving Averages (EMA) on the daily chart. The Relative Strength Index (RSI) sits near 35.65, supporting further downside potential. A break below the lower Bollinger Band at 100.25 could expose the psychological 100.00 level, with extended losses potentially reaching 99.74 and 99.57—lows from July 2023. Resistance for the DXY lies at 101.23 (high of September 23), with a tougher barrier around 102.00-102.05. A breach here could spark a rally towards the 100-day EMA at 102.95.

EUR:
In Europe, expectations of a 25 basis point (bps) rate cut by the European Central Bank (ECB) in October have cooled, following recent comments from policymakers. ECB officials suggest December may be a more appropriate time for monetary adjustments, allowing more data to inform decisions. Klaas Knot, an ECB Governing Council member, highlighted on Dutch TV that gradual interest rate cuts are expected, projecting continued reductions through 2025. Knot also cautioned that interest rates are unlikely to return to pre-pandemic lows, instead settling at a more “natural” level starting around 2%.

GBP:
The Pound to Dollar (GBP/USD) exchange rate recently reached a 30-month high at 1.3340, before consolidating slightly above 1.33. While the Fed’s interest rate cut provided a boost for GBP, HSBC remains skeptical about the sustainability of these gains, citing vulnerabilities in the UK economy. The bank anticipates the pair falling to 1.25 by the end of 2025, arguing that Fed rate cuts may not necessarily weaken the dollar. A gradual cut could improve optimism for a soft US landing, while US recession fears would increase demand for the dollar.

The pound had a mixed performance on Monday, rising against the euro but stumbling elsewhere after the release of the UK’s preliminary PMI data. September saw a slowdown in both the services and manufacturing sectors, though both remained in expansion territory. The services sector dipped to 52.8 (below forecasts), while manufacturing fell to 51.5. Despite the declines, the overall PMI still indicates modest growth in the UK economy, containing GBP’s losses. According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, the cooling of output growth is consistent with the economy expanding at a rate close to 0.3%, in line with Bank of England forecasts.