USD: Trade truce signs and Fed easing bets
A wave of positive catalysts is lifting risk sentiment – and may cap the US dollar’s recent rebound. Global equities are extending gains, with the S&P 500 closing at a record high, buoyed by falling bond yields and growing optimism on inflation. The expected meeting between Presidents Trump and Xi this week adds to the momentum, with signs of a mutually beneficial trade deal easing supply-chain and tariff risks.
September’s CPI print offered further support for Federal Reserve (Fed) easing. While headline inflation cooled, underlying pressures in core goods and services – excluding autos and shelter – remain near 4%. Still, if the Fed was prepared to cut rates this week despite elevated readings, this latest report only reinforces the case for another move. But there is arguably a limit on how much the Fed can be expected to cut rates beyond the 50bp priced by year-end 2025, absent data updates on the labour market
We do note too that flash PMIs, by contrast, were quite solid and potentially more significant given that the resumption of the Fed’s cutting cycle is linked to labour market risks. With a 25bp rate cut largely priced in, the real question for this week’s FOMC is whether the Fed opts to end quantitative tightening immediately. Signs suggest reserves are nearing the “ample” threshold, and an early halt to QT could exert additional downward pressure on the US dollar.
EUR: ECB in a good place
The European Central Bank (ECB) is widely expected to stay on hold this week, with no fresh policy signals likely. While downside risks persist, recent Euro-area data supports a wait-and-see stance.
Inflation remains subdued, reinforcing the case for no further cuts. Meanwhile, Euro-area PMIs showed broad improvement across manufacturing, services, new orders, and employment—though the recovery is uneven. Gains were led by German services, while French manufacturing continues to lag. Still, the overall resilience, especially in the labour market, should help contain inflation risks and justify the ECB’s cautious approach.
For the euro, this bodes well given the Fed is still cutting rates, narrowing the EZ-US rate differential. The softer US inflation print on Friday meant EUR/USD managed to hold firm above $1.16 – retaining its 12% gains year-to-date. On the month though, the euro is on track to decline 1% having traded just over $1.19 in September.
As well as the ECB meeting this week, we have a slew of Eurozone data, from Q3 GDP figures to flash October inflation data and sentiment indicators from Germany. We remain focused on the downside/dovish risks that could drag the euro below its $1.16 support.
GBP: Mixed macro signals
Sterling traded unevenly last week as mixed macro signals clouded the outlook. Softer UK inflation revived expectations for a BoE rate cut in December, with market pricing nearing 70% and front-end gilts rallying in response. However, stronger retail sales and improved consumer confidence suggest underlying resilience, tempering some of the dovish momentum.
Despite easing bets, the UK’s relatively high terminal rate continues to offer support. GBP/USD remains above its 200-day moving average near $1.32 – a key technical level. A break below would open the path toward $1.31 and potentially $1.30. Options markets show rising demand for downside protection ahead of November’s Budget, reflecting fragile sentiment.
GBP/EUR remains in a sideways trading pattern with €1.1430 the next support. Rallies have lacked conviction, and fresh lows are increasingly likely. Traders are likely to stay cautious ahead of key global events though, including the Fed decision, the Trump-Xi meeting, and a raft of data globally.
Watch for: UK October Lloyds Business Barometer on Friday. Following soft inflation, strong retail sales, and resilient PMIs, this survey will help gauge momentum. We continue to expect no Bank of England rate cut in November. But the UK Budget is the main risk event looming and keeping bullish GBP traders on the sidelines. Fiscal risk is dominating the narrative, and the pound is reacting more to concerns about credibility and stability than to yield differentials.
Swiss franc dominates FX space
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: October 27-31
All times are in GMT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
