Forex News

• EUR/GBP posts a knee-jerk reaction at 0.8525 and dips to a fresh two-month low just above 0.8500.
• Hot Eurozone inflation figures have increased pressure on the Euro.
• Concerns about French public debt and high Oil prices have crushed the single currency this week.
  

The Euro (EUR) reverses previous daily gains against the British Pound (GBP) on Friday, diving to fresh two-and-a-half-month lows just above 0.8500, and is set to show a more than 1% weekly decline. A toxic mix of surging Eurozone inflation, high Oil prices and escalating borrowing costs in France is keeping investors away from the Euro, which shows the weakest weekly performance among the G8 majors.

Data released by Eurostat earlier on Friday revealed that the Eurozone’s preliminary Harmonised Index of Consumer Prices (HICP) accelerated in September to three-year highs, boosted by the higher costs of energy stemming from the Middle East war.

The Headline HICP rose to a 3.8% year-on-year (Y-o-Y) rate, from 3.2% in August, beating expectations of a 3.6% growth. The core HICP, which strips off the influence of food and energy costs, has shown a more moderate increase, to 2.5% from 2.4% in August, in line with the market’s expectations.

French debt in the spotlight 

Beyond that, concerns about France’s soaring borrowing costs remain front and centre, as the gap between the German and the French government bond yields surged beyond 140 basis points on Friday, the highest differential since 2012, in the aftermath of the Eurozone's credit crisis.

The French government presented the 2027 budget bill on Thursday, which includes measures to reduce the fiscal deficit, but there are few hopes that it will pass a divided parliament as the opposition parties take positions to replace President Macron after next year’s elections

Crude Oil prices are trading lower on Friday amid reports that supplies from Gulf countries neared pre-war levels in September. This, however, is providing little support to the Euro, as Brent Oil prices remain close to the key $100 level, more than 30% above early July lows, at levels that pose significant pressure on the region's economic growth.

In the UK, in the absence of key macroeconomic releases, the Pound keeps drawing some support from hawkish comments by Bank of England (BoE) officials earlier in the week. Strategists at Rabobank, however, caution that “more than 100 bps of policy tightening is priced in on a 12-month view,” which, in their view, leaves limited scope for further GBP upside from the rates channel, and “it is more likely that GBP could soften as rate hike risks are reined in.”

• Australian Dollar gains despite the RBA seem unlikely to hike interest rates again in the near term.
• Investors keenly await the US NFP data for September, releasing at 12:30 GMT.
• The US economy is expected to have created 90K fresh jobs in September.

The Australian Dollar (AUD) is 0.17% higher at around 0.6640 against the US Dollar (USD) during the European trading session on Friday. The Aussie pair gains as the Australian Dollar rises despite experts doubting about more Reserve Bank of Australia (RBA) interest rate hikes.

This week, the RBA hiked interest rates by 25 basis points (bps) to 4.6%, as expected, and Governor Michele Bullock kept the door open for further policy tightening. However, strategists at Brown Brothers Harriman (BBH) highlighted that Bullock’s remarks suggested less urgency for additional tightening.” They point out that Bullock’s “hope that the four hikes this year would prove sufficient alongside confirmation that the Board considered a pause at today’s meeting took some of the hawkish edge off the decision.”

Meanwhile, the US Dollar trades subduedly ahead of the United States (US) Nonfarm Payrolls (NFP) data for September, which will be published at 12:30 GMT.

At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, is marginally down to near 102.00.

BBH points out that expectations for the upcoming US labor market report have been marked down notably, with “consensus … looking for NFP gains of +90k vs. +162k in August.” The bank adds that Bloomberg’s “whisper number is +84k,” while alternative gauges such as “ADP private payrolls and Revelio Labs employment imply NFP gains of +67K,” underscoring the risk of a materially softer headline print relative to last month’s outcome.

AUD/USD Technical Analysis

In the daily chart, AUD/USD trades at 0.6937, keeping a bearish near-term bias as spot holds beneath the 20-period exponential moving average (EMA) at 0.7050. The pair has retreated sharply from recent highs, and while the Relative Strength Index (14) sits in oversold territory near 27, this momentum backdrop only hints at stretched downside rather than a clear reversal, with price action still capped by the overlying EMA.

On the topside, initial resistance is located at the 20-day EMA around 0.7050, which acts as the first hurdle for any corrective bounce. As long as AUD/USD remains below this technical barrier, sellers are likely to retain control, and any recovery attempts would be viewed as corrective within the broader bearish phase.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

• USD/CHF retreats to the mid-0.8200s after hitting 16-month highs at 0.8380 earlier this week.
• Switzerland's low government debt is supporting the CHF as concerns about budget deficits grow.
• Commerzbank analysts affirm that the Swiss Franc might have already reached a bottom.

The Swiss Franc (CHF) is emerging as a safe haven amid the global government bonds sell-off, showing a surprising comeback against an otherwise firm US Dollar (USD) this week, as Switzerland's sound fiscal position stands out with government debt escalating amid the world's leading economies. Against this backgdrop, the USD/CHF pair has dropped about 1.2% over the last two days, hitting daily lows at 0.8266 after hitting 16-month highs at  0.8382 earlier this week.

Risk aversion has prevailed this week, as global treasury yields escalate. Investors are demandinghigher returns to buy government bonds, as budget deficits increase and high energy prices force most of the major central banks to tighten their monetary policies.

Swiss Franc seen supported as deficit concerns come to the fore

In this context, Switzerland stands out with a total net debt of CHF 149 billion, which is about 15% of the country’s Gross Domestic Product (GDP). In contrast, France’s debt has reached 119% of GDP, raising concerns about a new credit crisis in the Eurozone. The US shows a 125% debt-to-GDP ratio, while Japanese debt is well above 200% of its Gross Domestic Product, just to give an idea.

The low debt has offset the unfavourable monetary policy divergence that has crushed the Swiss Franc during the last few months. Moderate Swiss Inflation and an uncertain economic outlook amid the trade rift with the US have forced the Swiss National Bank (SNB) to keep interest rates steady at 0%. With global central banks tightening their monetary policies, the comparatively low SNB rates have attracted the attention of carry traders and threatened to send the CHF into a tailspin.

Looking ahead, analysts at Commerzbank highlight that the Swiss Franc is set to benefit as fiscal worries are increasingly shaping FX dynamics into year-end. They warn that there might be moments of CHF weakness in periods of stabilisation, but they also affirm that "the Franc has probably reached its low point in recent weeks and will not depreciate further in the near future.”