USD: Dollar recovery still built on shaky grounds
According to data from Challenger, Gray & Christmas, companies last month announced 153,074 job cuts – driven primarily by the technology and warehousing sectors – nearly triple the number recorded in the same month last year. US dollar topside exposure was trimmed, with the dollar index slipping south of the 100 handle. The print modestly reinvigorated the chances of a December cut, with probabilities rising from 62% to as high as 72%, before scaling back slightly at the open today.
With dollar positioning still the most skewed toward strength in H2, we view these outsized bearish pushes lower as more justified relative to the limited bullish follow‑through from strong ADP and ISM services PMIs earlier in the week. Especially when bullish positioning is built on little substance – with the dollar still lacking solid government data- the chances of positioning unwinding on soft data releases such as this increase significantly.
While as a sustained move above 100 looks premature in the absence of a substantially bullish catalyst for now, we are equally skeptical of any meaningful pullbacks from current levels, given the lack of clear bearish drivers. Tops of the 99 zone seem appropriate for now. That said, with optimism from eased trade tensions with China having faded following the agreed truce, investors may increasingly focus on domestic politics rather than predominantly on international developments. As the government shutdown has become the longest in history, political risk premium is therefore more likely to come to the fore – as reflected in the recent uptick in the term premium component of the 10-year yield. This dynamic could translate into more meaningful dollar downside should no resolution come into view any time soon.
GBP: BoE holds, December cut looms
The Bank of England held its base rate at 4% in a close 5–4 vote, with four members favouring a cut. This marks a shift from the prior 7–2 split and underscores growing appetite for easing amid softer inflation and a weakening labour market. Sterling pared gains and gilt yields fell on the decision. Governor Bailey struck a cautiously dovish tone, noting that inflation eased to 3.8% in September, likely marking the peak, while services inflation tied to wages is expected to normalise further. He made clear, however, that more data is needed to validate further easing and that September’s lower‑than‑expected print alone is not sufficient. He also highlighted that activity remains below potential and the labour market continues to soften, though additional evidence is still required to confirm the disinflation trend.
With fiscal tightening expected from the November budget, adding pressure on growth and inflation, and given the narrow vote split, the setup points to a December cut as increasingly likely. That said, for now investors appear reluctant to fully price deeper easing until next week’s heavy UK data releases provide further validation – with a 70% chance of a cut now priced in, up from 64–65% before the meeting.
Onto price action, sterling gained across the G10 board – but we don’t see this as meaningful. The rebound likely reflected investors unwinding defensive positions after no surprise cut, giving GBP some breathing room. Yet Bailey’s ‘we need to see data’ tone keeps the dovish bias intact and, combined with the heavy UK releases due next week, suggests the rebound may simply offer sellers better entry levels as more downside is expected.
EUR: Best day in over a month for euro
The euro posted its strongest daily gain against the dollar since late September, though the move was limited to just 0.5%—underscoring how tough it’s been for the common currency to build upside momentum. Buyers have defended the $1.14 level, eyeing a potential extension toward the 21-day moving average near $1.16, which has recently flattened. A rebound in the relative strength index from near-oversold territory adds technical support to the recovery attempt.
On the macron front, Eurozone PMIs surprised to the upside earlier in the week, with France’s industrial and manufacturing sectors outperforming expectations despite ongoing political uncertainty. In contrast, weaker-than-expected German industrial output and soft eurozone retail sales painted a more uneven macro picture, which is why EUR price action was largely subdued.
As it stands, the euro remains tethered to US developments. With investors parsing alternative indicators to gauge the health of the US economy – and sentiment buoyed by factors like trade negotiations – USD strength has persisted so far into the new month. As a result, EUR/USD is still trading below levels implied by macro fundamentals and policy outlook, which we estimate to be around $1.17.
This undervaluation helped fuel the sharper rebound yesterday, triggered by news of substantial private-sector layoffs in October. Still, as the euro edges closer to its fair value, further upside will likely require a steady stream of softer US data – especially given the Fed’s apparent reluctance to ease without more compelling evidence ahead of December’s policy announcement.
Pound rebounds from oversold territory
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: November 3-7
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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.
