Weekly Currency Update: GBP, EUR, and USD Analysis
The US 10-year Treasury yields hit a 16-year high today, breaching the 5% mark. This has added stress to the global financial system, causing a renewed demand for the US dollar. Consequently, major equity indices are falling, and oil and copper prices are declining. Moreover, many major currencies are trading defensively against the greenback as some investors seek protection against a possible recurrence of the global financial crisis.
Let’s dive into the latest news and events impacting these major currencies.
GBP: Labour Victories and Economic Indicators
The British Pound (GBP) had a bumpy ride at the end of last week due to political and economic factors. The Labour Party won two by-elections, which caused significant swings and grabbed everyone’s attention as they took seats from the government. Consumer confidence in October dropped to -30 from the previous reading of -20. Additionally, the Yearly Retail Sales fell by 1% in September. These economic indicators show the difficulties the UK economy is currently facing. Looking forward, we expect the release of employment and Flash PMI data on Tuesday, and MPC Cunliffe is scheduled to speak on Thursday. GBPUSD is getting close to a critical support level at 1.2000. The question now is whether it can recover from this or not.
EUR: Euro’s Resilience and ECB Developments
Despite an influx of safe-haven buying of the US Dollar, the Euro (EUR) managed to maintain its position. The Euro has been under pressure due to negative Flash PMI readings in recent months. It remains to be seen if this Tuesday’s PMI release will have a similar impact. ECB President Lagarde and Board member Visco have consistently expressed concerns that interest rates may need to be raised. As the week progresses, the ECB meeting and interest rate decision on Thursday will likely be the main focus.
USD: Geo-Political Tensions and US Economic Indicators
Despite President Biden’s visit, geo-political factors continue to affect the US Dollar (USD). The conflict between Israel and Hamas remains a potential driver of further USD buying. The yield on the US 10-year bonds has reached 5%, leaving the market to ponder whether higher yields will continue to support the USD and if they might eliminate the Fed’s need for an additional rate hike. Fed Chair Powell’s recent remarks about the “totality of incoming data” have raised questions. Some Bloomberg analysts are now considering that the Fed may hold rates steady on November 1st. Given these factors, it is crucial to monitor the market’s response and stay tuned for further developments in the currency world.