Weekly Market Overview: GBP, EUR, and USD Analysis
GBP: Sterling Faces Challenges Amid Dollar Strength
Despite the positive Gross Domestic Product (GDP) data, the pound had a difficult week. The resurgent U.S. dollar, driven by safe-haven demand and concerns over inflation, kept GBPUSD under pressure. In the upcoming week, key economic releases such as UK Average Earnings on Tuesday, UK Consumer Price Index (CPI) data on Wednesday, and Retail Sales data on Friday will be the focus of the market. Market participants will be closely watching whether CPI continues its recent trend of decline. The critical question for GBPUSD is whether it can maintain its composure above the psychologically significant level of 1.2000.
EUR: Euro at the Mercy of Rate Hike Cycle and the US Dollar
Last week, the President of the European Central Bank (ECB), Lagarde, remarked that the ECB officials are fully prepared to raise rates if necessary. However, they are also evaluating the impact of previous rate hikes and how they have affected the economy. According to analysts at Bloomberg, the rate hike cycle in the Eurozone has come to an end, which makes the euro vulnerable to the strength of the U.S. dollar. As expected, the monthly Final Consumer Price Index (CPI) data in Germany grew by 0.3%. In the upcoming days, market participants will closely watch the release of Eurozone Final CPI data on Wednesday to determine whether inflation is continuing to trend downward.
USD: U.S. Dollar Maintains Strength Amid Geopolitical Uncertainty
The US dollar is getting stronger due to the increasing bond yields, despite the Federal Reserve’s assessment of balanced risks around inflation and a stagnant economy. According to Bloomberg analysts, there is a 40% chance of a US rate hike in early November. Geopolitical tensions are also a concern as Israel’s preparations for a potential ground invasion of Gaza raise fears of escalation in the region, which could involve other countries. The US House of Representatives has not yet elected a Speaker, and this could impact financial aid to Ukraine and Israel, potentially leading to a government shutdown on November 17th. Given these uncertainties, it raises the question of whether it will encourage greater foreign exchange (FX) hedging.