Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Euro hit on Lagarde’s gloomy outlook
The euro was down sharply overnight after the European Central Bank cut interest rates by another 25 basis points as the global rate-cutting moves continued.
The ECB cut their deposit rate by 25bps to 3.25% in a widely expected move that saw little initial impact on the euro. However, ECB president Christine Lagarde’s downbeat assessment of the European economy – saying growth has been “weaker than expected – caused markets to speculate the ECB will need to cut rates further.
The euro fell across markets with the EUR/USD down 0.3%.
The AUD/EUR jumped back towards 15-month highs while EUR/SGD hit 18-month lows.
USD extends gains on retail data
In other markets, the US dollar continued to gain, with the USD index up 0.3% as it hit new ten-week highs. Most currencies fell versus the USD although the Aussie bucked the trend after a stronger September jobs report.
US data was better than expected overnight – extending a recent theme – with September retail sales up 0.4% versus the 0.3% expected and up on August’s 0.1% reading. Weekly unemployment claims fell to 241k from 260k last week.
Looking forward, US housing starts to provide more insight on the US’s economic health at 23:30 AEDT
There was a 4.9% month-over-month fall in housing starts, from 1356k in August to 1290k in September. Single-family starts most likely offset August’s big gain.
Furthermore, Hurricane Helene probably had an impact on construction in the South.
A robust result with sticky inflation and fewer-than-expected rate cuts from the Fed would take us back to the USD’s exceptional status, as was seen in the previous two years when investors underperformed.
We continue to be more positive on the USD index ahead of the US presidential election.
Price action seems to indicate a bullish trend for the USD index with 50-day EMA looking to cut above 200-day EMA – traditionally seen as a positive sign for gains.
GBP/USD rebounds from key levels
Retail sales in the UK will be announced today at 17:00 AEST. According to the BRC, September’s yearly rate of sales growth increased, in part because of the month’s chilly and rainy conditions (the highest amount of rainfall for September since 1927), which encouraged people to buy warmer apparel.
Future retail sales may be supported by lower interest rates and a strong labor market, but the opposite may also be true if wage growth slows and confidence declines.
Though the official numbers increased by 1% month-over-month in July and August, there is every reason to anticipate a tumultuous set of events in September.
Therefore, we anticipate a 0.5% month-over-month decline in ex-auto fuel sales volumes in September, even in spite of the improved polls.
The GBP/USD dropped below key support at 1.3000 but later rebounded, a potential sign of further GBP recovery.
Euro drops sharply after ECB – especially across APAC
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 14 – 18 October
All times AEST
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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.
