The Pound Sterling and the Euro currencies slipped to six-week lows near 1.1550 as UK fiscal worries resurfaced. Rising government borrowing, tighter budget risks and the Bank of England’s cautious policy stance weighed on sentiment.
Danske Bank now Pound-to-Euro exchange rate forecasts GBP/EUR sliding to 1.1235 over 12 months, while Macquarie expects a rebound towards 1.1765 into 2027.
GBP/EUR Forecasts: Fiscal fears return
Danske Bank forecasts that the Pound to Euro (GBP/EUR) exchange rate will weaken to 1.1235 on a 12-month view.
Macquarie notes potential short-term vulnerability, but expects GBP/EUR gains to 1.1765 by early 2027.
GBP/EUR dipped to 6-week lows near 1.1550 late in the week amid fresh concerns surrounding UK fundamentals.
According to Danske Bank; “We see domestic factors and the relative growth outlook between the UK and the euro area as becoming GBP negatives. This is further amplified by divergence in the fiscal policy outlook with UK fiscal policy set to be tightened in the Autumn.”
Macquarie played down the Pound risks; “Fiscal concerns occasionally make their presence felt and, when they do, the spectacle of sterling selling off in tandem with rising yields can be unsettling. But such episodes have been brief, and the present state of the UK yield curve can be largely explained by expectations for a persistently elevated policy rate, together with some spillover effects from a steepening of yield curves globally.”
The Bank of England held interest rates at 4.00% at the latest policy meeting, in line with strong consensus forecasts.
There was a 7-2 vote for the decision as Dhingra and Taylor voted for a further cut to 3.75%.
There was no significant shift in guidance with Bank Governor Bailey continuing to warn over the need for caution over any further cuts.
The latest government borrowing data was worse than expected with the August deficit at £18.0bn compared with £14.5bn the previous year.
Spending increased sharply over the year with central government’s current expenditure provisionally estimated as £89.1 billion from £81.3bn the previous year.
The data triggered fresh fears surrounding underlying fiscal trends as UK yields moved higher again.
RBC commented on the outlook; “Related to the Budget theme, we continue to see a strong sensitivity of GBP to moves in long-end rates. Typically, GBP should strengthen as yields rise, yet recently we have seen some “sell everything UK” moves where sterling, equities and bonds have all sold off in tandem as fiscal concerns sour investors perception of the UK.
Investment banks continue to discuss the outlook for BoE policy.
According to MUFG; “Recent data hasn’t produced any surprises and the bar for a November cut looks high after the finely balanced vote to cut in August. We continue to expect the next cut in December.”
MUFG added; “The onus will be on the data and there will be plenty of it between the next two meetings, and we suspect that Budget speculation will increasingly weigh on sentiment and activity. We then see gradual easing continuing in 2026 to a terminal rate of 3.25%.
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The euro rallied a bit in the early hours here on Monday to reach the 1.18 level. The 1.18 level is a large, round, psychologically significant figure that, of course, has been important multiple times. And if we can break above here, it opens up a move to the 1.19 level, possibly even the 1.20 level. Short-term pullbacks will continue to find plenty of momentum, I think, perhaps trying to break out, but there are a lot of questions out there about the risk appetite, and I think that will continue to be reflected in this pair. If we break down below the 1.17 level, we probably just sit right in that consolidation area for a while.
USD/JPY Technical Analysis
The US dollar initially tried to rally against the Japanese yen, but gave back the gains, and we find ourselves just sitting here. At the 200-day EMA, the Friday candlestick was a hammer. It looks like we might try to form some type of negative shooting star candle. So, I think this is a market that just really doesn’t have anywhere to be at the moment, with the 146 yen level offering support and the 149 yen level offering resistance.
EUR/USD clings to small daily gains above 1.1750 on Monday.
The technical outlook doesn’t yet point to a buildup of bullish momentum.
Markets await comments from ECB and Fed policymakers.
Following the bearish action seen in the second half of the previous week, EUR/USD corrects higher on Monday and trades above 1.1750. As investors await comments from central bank officials, the pair’s technical outlook doesn’t yet reflect a buildup of recovery momentum.
Euro Price Last 7 Days
The table below shows the percentage change of Euro (EUR) against listed major currencies last 7 days. Euro was the weakest against the Swiss Franc.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
-0.24%
0.42%
0.16%
-0.23%
0.75%
1.58%
-0.27%
EUR
0.24%
0.69%
0.35%
0.00%
1.03%
1.78%
-0.04%
GBP
-0.42%
-0.69%
-0.26%
-0.67%
0.34%
1.09%
-0.83%
JPY
-0.16%
-0.35%
0.26%
-0.41%
0.63%
1.41%
-0.43%
CAD
0.23%
-0.01%
0.67%
0.41%
1.09%
1.77%
-0.16%
AUD
-0.75%
-1.03%
-0.34%
-0.63%
-1.09%
0.75%
-1.09%
NZD
-1.58%
-1.78%
-1.09%
-1.41%
-1.77%
-0.75%
-1.90%
CHF
0.27%
0.04%
0.83%
0.43%
0.16%
1.09%
1.90%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
EUR/USD registered losses for three consecutive days to end the week as the US Dollar (USD) benefited from the Federal Reserve’s cautious tone on aggressive policy easing moving further.
Assessing the Fed’s policy outlook and the USD’s futures, “despite Fed Chair Jerome Powell’s cautionary tone, the FOMC has clearly shifted to a dovish stance where it sees multiple cuts, and the focus is now firmly on the employment side of the mandate,” noted ING analysts and added:
“Our call is for two more 25 basis-points cuts this year, and we see the cheapening of the Dollar’s funding cost as driving more depreciation in an already seasonally weak end of the year for the greenback.”
The US economic calendar will not feature any high-tier data releases on Monday. Several Fed policymakers will be delivering speeches during the American trading hours. In case Fed officials reiterate that they will not commit to a steady easing of the policy, citing upside risks to inflation, the USD could stay resilient against its rivals and make it difficult for EUR/USD to gather bullish momentum.
European Central Bank (ECB) Chief Economist Philip Lane and Governing Council Member Joachim Nagel will also be speaking in the second half of the day. ECB policymaker Mario Centeno said on Friday that the ECB’s next move is likely to be a rate cut, noting that he still sees inflation risks to the downside. Similar remarks from ECB officials could be negative for the Euro with the immediate reaction.
EUR/USD Technical Analysis
The Fibonacci 23.6% retracement of the latest uptrend aligns as a pivot level at 1.1770. In case EUR/USD fails to clear this level, technical buyers could be discouraged. In this scenario, 1.1730 (100-period Simple Moving Average (SMA) on the 4-hour chart) could be seen as the first support level before 1.1690-1.1700 (Fibonacci 38.2% retracement, 200-period SMA) and 1.1640 (Fibonacci 50% retracement).
Looking north, resistance levels could be spotted at 1.1800 (static level, round level), 1.1850 (upper limit of the ascending channel) and 1.1870 (end-point of the uptrend).
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The euro dropped a bit against the Japanese yen during the day on Friday, breaking below the ¥174 level. The ¥174 level is an area that previously has been resistant, as it was the top of the ascending triangle that I have been watching so closely.
All things being equal, the market is likely to continue to see this area as important, but the short-term pullback I think offers a bit of value that people might be willing to take advantage of.
Bank of Japan
The Bank of Japan chose to hold interest rates stable, but they stopped buying ETF’s, which means they are not willing to help risk assets. That is in a roundabout way slightly tighter with monetary policy, but at the end of the day I think really what it comes down to is that the Bank of Japan is not going to be raising rates anytime soon, and therefore I think the market will continue to show the Japanese yen unless of course we get a major move to a “run to safety” type of attitude. Based on the ascending triangle, the potential target is going to be somewhere near the ¥177 level, but that doesn’t mean that we have to get there overnight.
Remember that the interest rate differential still favors the euro, although the euro isn’t the high yielding currency that I would choose based on swap to trade against the Japanese yen. From a technical analysis standpoint, it’s obvious that this is a market that is very bullish, and what I find interesting about the ascending triangle is that it not only has an up trending line but also has the 50 Day EMA sitting right at that line offering support as well. Ultimately, this is a market that I’m looking at dips as potential buying opportunities, and therefore I think it’s only a matter of time before we get involved in this market to the upside yet again.
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
GBP/USD rebounds toward 1.3500 to start the new week.
The technical outlook suggests that the bearish bias remains intact in the near term.
Markets will pay close attention to comments from Fed officials.
After touching its highest level since early July above 1.3720 last Wednesday, GBP/USD made a sharp U-turn and suffered large losses in the second half of the week to close in negative territory. The pair holds its ground early Monday and clings to small gains at around 1.3500.
Pound Sterling Price Last 7 Days
The table below shows the percentage change of British Pound (GBP) against listed major currencies last 7 days. British Pound was the weakest against the Swiss Franc.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
-0.25%
0.46%
0.19%
-0.19%
0.74%
1.58%
-0.23%
EUR
0.25%
0.74%
0.38%
0.06%
1.03%
1.81%
0.00%
GBP
-0.46%
-0.74%
-0.30%
-0.67%
0.29%
1.04%
-0.83%
JPY
-0.19%
-0.38%
0.30%
-0.41%
0.60%
1.37%
-0.42%
CAD
0.19%
-0.06%
0.67%
0.41%
1.04%
1.72%
-0.16%
AUD
-0.74%
-1.03%
-0.29%
-0.60%
-1.04%
0.75%
-1.06%
NZD
-1.58%
-1.81%
-1.04%
-1.37%
-1.72%
-0.75%
-1.85%
CHF
0.23%
-0.01%
0.83%
0.42%
0.16%
1.06%
1.85%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The Federal Reserve’s (Fed) cautious tone on further policy easing supported the US Dollar (USD), while the Bank of England’s (BoE) expected decision to maintain the status quo failed to help Pound Sterling find demand, causing GBP/USD to remain under bearish pressure.
In assessment of the market reaction to the BoE, “regarding future decisions, the policymakers did not reveal their hand, leading to no significant changes to interest rate expectations. In short, the decision was not a major game changer for the Pound,” Commerzbank analysts said.
Later in the day, investors will pay close attention to comments from Fed officials. The CME FedWatch Tool shows that markets widely see the Fed opting for two more rate cuts in the remaining two policy meetings this year. Hence, a confirmation of such policy steps is unlikely to trigger a significant market reaction. In case policymakers hint that they might reassess the rate outlook if inflation data start reflecting the impact of tariffs, or if the labor market shows signs of recovery, the USD could outperform its rivals and cause GBP/USD to turn south.
On Tuesday, preliminary September Services and Manufacturing Purchasing Managers’ Index (PMI) data from the UK and the US could offer key insights into the growth outlook of respective economies.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart remains below 40 after rebounding from oversold levels, suggesting that the bearish bias remains intact and GBP/USD’s latest recovery is a technical correction rather than a reversal. Additionally, the pair remains below the 100-period and the 200-period Simple Moving Averages (SMAs).
On the downside, 1.3470 (Fibonacci 38.2% retracement of the latest uptrend), aligns as the first support level before 1.3410-1.3400 (Fibonacci 50% retracement, round level). Looking north, resistance could be seen at 1.3510 (200-period SMA), 1.3530 (100-period SMA) and 1.3550 (Fibonacci 23.6% retracement).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The GBPJPY pair provided new negative close in Friday’s trading below 200.45 level barrier, which forces it to form some bearish correctional trading, to settle near 199.55.
By the above image, we notice stochastic reach below 50 level, to provide the extra negative momentum, to confirm the dominance of the bearish correctional bias, which makes us keep the bearish suggestion until reaching the negative station near 198.60 and 197.80.
The expected trading range for today is between 198.60 and 200.40
The EURJPY pair is forced to form bearish correction wave after hitting the target at 174.45, affected by stochastic attempt to exit the overbought level, noticing its fluctuation near the breached barrier, forming an extra support at 173.40.
The price success to settle above the current support will provide new chance for forming bullish waves, repeating the pressure on 174.40 level, and surpassing it will make it reach the next target near 175.20, while its surrender to the negative pressures by its move below the support will force it to delay the bullish attack, forming more of the correctional trading, to reach 172.80 initially, reaching the support of the bullish channel at 171.35.
The expected trading range for today is between 173.40 and 175.20
The Federal Reserve cut its benchmark rate by 25 basis points as expected.
European Central Bank officials delivered mixed messages on future policies.
EUR/USD retreated sharply after hitting fresh 2025 highs, steeper slide on the cards.
The EUR/USD pair peaked at 1.1918, a fresh four-year high on Wednesday, giving up most of its gains and settling at around 1.1750 by the end of the week. Central banks lead the way, with the Federal Reserve (Fed) monetary policy decision rocking the board and giving fresh impetus to the US Dollar (USD).
Federal Reserve delivers first 2025 rate cut
Whereas such USD strength would be sustainable in time, it depends on the upcoming macroeconomic data. The Federal Open Market Committee (FOMC) delivered a cautious cut, announcing the reduction of its benchmark rate by 25 basis points (bps) after the September two-day meeting. Even further, the Summary of Economic Projections (SEP) showed that Fed officials anticipate two more rate cuts in 2025, confirming the market’s speculation of additional cuts in October and December. However, the same SEP showed policymakers retain the view of just one cut in 2026.
Of course, there was one dissenter, the newly appointed by United States (US) President Donald Trump, Stephen Miran. Miran voted for a 50 bps interest rate cut, and aimed for a 150 bps trim before year-end.
The decision fell short of President Trump’s desire, but pointed in the right direction. Market players were pricing in more than one cut in 2026, and the less dovish delivery ended up benefiting the Greenback after the initial USD sell-off.
Wall Street, however, rallied with the news, with the Dow Jones Industrial Average (DJIA) reaching unexplored territory. Gold price, on the contrary, eased from record highs, all of which reflects mounting optimism.
Chair Jerome Powell made some relevant comments in the press conference that followed the announcement. He said that the overall effect on economic activity of President Trump’s tariffs “remains to be seen,” adding that the lower immigration is below the softening jobs market rather than tariffs. “There’s very little growth, if any, in the supply of workers,” he stated.
Of course, he reiterated that the Fed is not on a preset path. “Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem,” he said, while repeating that monetary policy decisions will be made meeting-by-meeting.
US-China trade relationship returns to the limelight
Meanwhile, US President Trump and his Chinese counterpart, Xi Jinping, had a call on Friday to discuss the permanence of the TikTok app in the US. Investors hope both leaders also discussed their trade relationship, further softening tensions between Washington and Beijing.
Ahead of the call, Trump noted that he could also grant his giant rival an extension to the trade truce, maintaining financial markets in a good mood ahead of the weekly close. Additional headlines on the matter will likely come in the next few days.
Mixed message from European Central Bank officials
The European Central Bank (ECB) had little to offer these last few days, after announcing its decision to keep interest rates unchanged on September 11. ECB Vice President Luis de Guindos noted the central bank needs to follow a “very prudent” approach to monetary policy amid still high uncertainty, but added there was “very positive” news on inflation. Finally, he noted that the present policy stance is appropriate.
ECB Governing Council member Mario Centeno, on the other hand, had a more dovish approach and said that the “next move is still likely to be a rate cut.” He also noted that the central bank cannot tolerate inflation below 2% for too long, a level it’s likely to reach in 2028, according to forecasts. Nevertheless, he still sees inflation risks to the downside.
Data to become more relevant
The positive news from the inflation front that De Guindos mentioned came from the Eurozone Harmonized Index of Consumer Prices (HICP). The final estimate of the August HICP was confirmed at 2% YoY, below the 2.1% previously calculated, while the monthly figure was downwardly revised to 0.1% from a flash estimate of 0.2%.
Other than that, the Eurozone calendar included the German ZEW Survey on Economic Sentiment, which improved in September to 37.3 from the previous 34.7. Economic Sentiment in the bloc was also upbeat, hitting 26.1 from the previous 25.1. Still, the German assessment of the current situation fell to -76.4, worsening from the -68.6 posted in August.
As for the US, the country published August Retail Sales, up 0.6%. The figure beat the 0.2% anticipated by market players while matching the July revised figure, previously calculated at 0.5%.
In the days to come, the macroeconomic calendar will be more active. S&P Global, alongside local banks, will release the preliminary estimate of the September Purchasing Managers’ Indexes (PMIs) for all major economies. The European figures, published by the Hamburg Commercial Bank (HCOB), are expected to show a modest uptick in business activity. US figures, in the meantime, are expected to confirm continued expansion.
The US will publish the final estimate of the Q2 Gross Domestic Product (GDP) on Wednesday, expected to confirm an annualized growth of 3.3% in the three months to June.
Finally, the US will release the August Personal Consumption Expenditures (PCE) Price Index on Friday. The Fed’s favorite inflation gauge will come after the release of a not-so-encouraging Consumer Price Index (CPI) for the same month, showing inflationary pressures remain.
Other than that, there will be plenty of central banks’ speakers, which could provide fresh hints on what’s next for monetary policy decisions.
EUR/USD technical outlook
From a technical point of view, the weekly chart for the EUR/USD pair shows that the current candle offers a long upward wick and a very limited body that falls within familiar levels. The bullish case remains supported by moving averages, which keep heading north below the current level. The 20 Simple Moving Average (SMA) maintains its upward slope far above the longer ones, providing relevant mid-term support at around 1.1580. The Momentum indicator, however, aims lower within positive levels, approaching its midline and hinting at easing buying interest. Finally, the Relative Strength Index (RSI) indicator heads nowhere at around 65, also suggesting buyers paused.
EUR/USD is at the brink of turning even lower according to the daily chart. Moving averages have steadily lost their upward strength, and a flat 20 SMA stands at 1.1710, while an also directionless 100 SMA lies in the 1.1560 region. In the meantime, technical indicators head firmly lower and are about to cross their midlines into negative territory.
Near-term resistance comes at 1.1830, followed by the recent peak in the 1.1920 area. Additional gains expose the 1.2000 figure, with a rally towards the latter quite unlikely in the near term. On the other side of the equation, the 1.1700 mark offers immediate support ahead of the more relevant 1.1590 region. A clear break below the latter would open the door for a more sustained decline.
Economic Indicator
Core Personal Consumption Expenditures – Price Index (YoY)
The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures.” Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.
UBS Group strategists have lifted their dollar-yen forecasts,
now seeing USD/JPY at 143 by the end of 2025
and 140 by the end of 2026,
compared with 130 previously.
The revision reflects rising political uncertainty in Japan, which UBS says has helped keep the Bank of Japan more dovish than markets once expected.
While investors are still pricing in one more BoJ rate hike before January 2026, the yen has not fully benefited from tightening expectations. Strategists pointed to Japan’s strong equity market and lower volatility as additional drags on the currency. UBS said there is little sign of a coordinated move toward a stronger yen, such as a new Plaza Accord, and the pair is more likely to trade toward the lower end of a 140–150 range rather than break below it for long.
On the U.S. side, the bank expects the dollar to remain weak as labor market softness pressures short-term Treasury yields lower.
The US dollar extended its rebound into Friday, forcing the Euro to Dollar (EUR/USD) exchange rate back under 1.1750 at the New York open.
While short covering and firmer US data have underpinned the greenback, the euro remains trapped below 1.1800, with traders debating whether support at 1.1750 can hold or if deeper losses toward 1.1700 are on the cards.
EUR/USD Forecasts: Test Support Below 1.1750
The Euro to Dollar exchange rate (EUR/USD) found support on dips to 1.1750 on Thursday, but has not been able to regain the 1.1800 level and again dipped to below 1.1750 at the US open.
The dollar has been able to gain net support in global markets with evidence of short covering following the Federal Reserve interest rate cut.
Scotiabank commented; “The outsized reaction to Thursday’s better than expected claims data have also revealed a market that appears vulnerable to a squeeze.”
According to UoB; “Although downward momentum has not increased significantly, EUR could retest the 1.1750 level before a more sustained recovery is likely.
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Scotiabank focussed on potential support; “We look to support around the previously broken descending trend line drawn from the July highs, and would expect it to limit losses below 1.17.”
On the upside UoB added; “if EUR breaks above 1.1825, it would indicate that the current downward pressure has eased.”
ING is still positive on the outlook; “We are sticking to our call for EUR/USD to climb back to the 1.1850 handle in the coming days.”
Markets will continue to digest this week’s Federal Reserve decision and the policy outlook.
As far as the near-term outlook is concerned, markets are pricing in over a 90% chance that there will be a further 25 basis-point cut at the October policy meeting.
RBC Capital Markets expects further dollar losses; “The FOMC has embarked on a new rate cutting cycle, the first and most important of several pillars we are expecting to drive US$ to weaken.”
Credit Agricole, notes the scope for a dollar to recover from over-sold levels; “The Fed did not validate the excessively dovish market expectations at its September meeting, and this helped the USD regain some ground across the board.”
The bank discussed the potential for a more sustained recovery; “The question remains, however, whether the FOMC pushback would be sufficient to help the currency recover on a more sustained basis. We think that this could be the case in part because the market USD-bearish narrative has evolved considerably of late.”
European developments have not had a major impact at this stage.
ING noted developments in France; “Their latest political news isn’t very encouraging, as the new prime minister is facing harsh union opposition to his fiscal plans, and negotiations with the Socialists – who are believed to hold the key to passing the budget – have not yielded good results so far.”
It added; “The risk of further widening in the OAT-Bund spreads remains tangible, but what matters most for the euro is the rate of change in those adjustments, and so far we are not expecting a material FX spillover.”
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