European rate cuts in renewed focus as economic growth and inflation fall.
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Daily Currency Update
The ECB is likely to cut rates at its October 17th meeting due to the Eurozone’s economic challenges, including slowing growth, falling inflation, softened wage growth, and shrinking profit margins, according to ECB policy member Martins Kazaks.In the UK, recent data showed that pay settlements remained at their lowest level in two years, which is a positive sign for the Bank of England as it considers another rate cut this year. Markets are currently expecting a 36 basis point cut by year-end.
Meanwhile, the US Dollar reached a three-week high after the ADP employment report revealed a higher-than-expected increase in private payrolls for September, driven by strong labor market data and rising geopolitical tensions in the Middle East.
Key Movers
The Eurozone’s unemployment rate remained steady at 6.4% in August, matching July’s figure and meeting expectations. With harmonised inflation falling below 2%, there are concerns about disinflation, leading to increased market expectations for more aggressive ECB rate cuts by year-end.The Bank of England’s Financial Policy Committee stated that risks to UK financial stability remain unchanged since July. BoE policymakers indicated that the UK’s neutral interest rate is around 3.5%, with some MPC members suggesting rates will normalize to this level by the end of 2025.
Federal Reserve Bank of Richmond President Tom Barkin justified the 50 basis point rate cut in September, citing misalignment between interest rates, recent inflation declines, and the unemployment rate. He noted that policymakers are monitoring the impact of lower rates on home and auto sales to see if demand outpaces supply. The US Dollar remains strong as markets evaluate potential further rate cuts by the Fed through 2024.
Expected Ranges
- GBP/USD: 1.3165 - 1.3215 ▼
- GBP/EUR: 1.1925 - 1.1975 ▼
- GBP/AUD: 1.9180 - 1.9240 ▼
- EUR/USD: 1.0985 - 1.1040 ▼