Forex News

MUFG’s Lee Hardman notes the Pound is strengthening, with EUR/GBP near its year-to-date low and GBP/USD above 1.3350, as stronger UK labour data show rising payrolled employment and private sector wage growth in line with Bank of England projections. He argues this supports expectations for BoE rate hikes and a lower EUR/GBP trading range between 0.8200 and 0.8400.

BoE repricing supports stronger Pound

"The pound has continued to strengthen at the start of the European trading session resulting in EUR/GBP falling back towards yesterday’s year-to-date low of 0.8393 while cable has risen above 1.3350. The pound’s recent upward momentum has been reinforced this morning by the release this morning of stronger UK labour market data which revealed that payrolled employment increased by 13k in September."

"Overall, the stronger labour market data will encourage the BoE to begin hiking rates as soon as next month. Boe officials including Governor Bailey have clearly signalled recently that is becoming harder to look through higher energy price and leave rates on hold. Weak labour market conditions have been used to justify caution over tightening policy."

"We continue to expect the BoE to hike rates next month and deliver a second hike early next year. A view that is already well priced into the UK rate market which is anticipating even more tightening and has almost three hikes priced in by March of next year. Positive cyclical economic momentum in the UK remains favourable for a stronger pound as long as the government ‘s upcoming Budget doesn’t undermine confidence in the credibility of their fiscal consolidation plans."

"EUR/GBP is currently attempting to break into a new lower trading range between 0.8200 and 0.8400 that was last in place between September 2024 and April 2025."

"In addition, the labour market report revealed that private sector wage growth moved up to 3.0%Y/Y which was in line with the BoE’s projection. However, it was the first increase since 20024, and the BoE will be watching closely as we go into the pay settlement period for 2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Commerzbank’s Thu Lan Nguyen analyzes EUR/USD’s sharp decline since September, initially driven by broad US Dollar strength and later by Euro-specific concerns over France’s public finances. She argues that as long as German Bunds retain their safe-haven role, Euro downside should be limited, and projects EUR/USD recovering next year, with forecasts rising from 1.15 in December 2026 to 1.18 by December 2027.

Euro pressured but downside constrained

"EUR/USD has declined markedly since September. Initially, the move was driven by broad-based US dollar strength amid a more supportive interest rate outlook. Since early October, however, euro weakness has taken center stage, reflecting growing concerns over the sustainability of France’s public finances."

"That said, as long as German government bonds retain their safe-haven appeal, the euro’s downside should remain limited. With energy markets expected to ease and interest rate expectations to readjust, we see scope for EUR/USD to recover next year."

"EUR/USD fell to its lowest level since spring 2025 in mid-October. The downward move, which began in September, can be divided into two phases."

"We expect the US dollar to suffer more from such a correction than the euro, not least because lower energy prices should improve the economic outlook for the euro area by more than for the US. We therefore see further upside potential for EUR/USD next year."

"If, however, conditions in bond markets stabilize, we see scope for the single currency to recover in the short term. This is supported by the fact that, if necessary, the ECB has effective crisis-management tools at its disposal, such as the Transmission Protection Instrument (TPI)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Standard Chartered economist Dan Pan expects the Bank of Canada (BoC) to keep its policy rate at 2.25% through end-2026 and 2027, despite market pricing for a much steeper tightening cycle. Pan argues that soft domestic demand, subdued core inflation and a weak labour market reduce the need for aggressive hikes, even if an October insurance move is delivered.

BoC seen holding despite market pressure

"We expect the BoC to stay put despite rising market pressure for rate hikes as early as this month Soft domestic demand and subdued core inflation show little risk of inflationary pressure broadening It is likely to be a close call given the BoC emphasises forward-looking inflation risks and policy setting Even with an October insurance hike, market pricing of the total tightening cycle is excessive, in our view."

"We now expect the Bank of Canada (BoC) to stay put at 2.25% until end-2026 and 2027 (versus a cut in 2026 and a hike in 2027 previously). High oil prices have lowered the likelihood of a near-term rate cut, but sustained economic slack and contained underlying inflation still make a case for the BoC to look through near-term energy price shocks."

"An October hike would be justified by caution, not necessity, in our view. BoC Governor Macklem’s comments since the September meeting emphasise forward-looking inflation risks and the central bank’s willingness to act early."

"While the BoC may deliver one or two hikes in early 2027 if core inflation picks up, we see no strong growth catalyst to justify the 100bps of rate hikes the market has priced in."

"A bullish investment outlook, driven by high commodity prices and AI adoption, could take time to lift growth, while the economy continues to struggle with lingering trade uncertainty."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

United Overseas Bank’s (UOB) Quek Ser Leang notes AUD/USD outperformed on Monday, closing at 0.6980 after China’s stronger Q3 GDP print. Short term, the Australian Dollar is seen probing 0.7000, though a sustained break above this level and the major resistance at 0.7015 is deemed unlikely. Over coming weeks, UOB expects range-trading between 0.6915 and 0.7015 despite a bearish EMA crossover.

Australian Dollar faces nearby resistance

"24-HOUR VIEW: We expected AUD to “edge higher” yesterday, but we indicated that it “should stay within a 0.6940/0.6985 range.” However, AUD rose more than expected to 0.6993 before closing at 0.6980 (+0.51%). Upward momentum is increasing, albeit not significantly. Today, there is scope for AUD to test 0.7000. A clear break above this level is unlikely. The major resistance at 0.7015 is also unlikely to come into view. Support is at 0.6965, followed by 0.6950."

"1-3 WEEKS VIEW: Our update from yesterday (19 Oct, spot at 0.6965) remains valid. As highlighted, AUD “appears to have moved into a range-trading phase,” and “for the time being, we expect it to trade between 0.6915 and 0.7015.” "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• The British Pound strengthens following better-than-expected UK employment data.
• Markets price in a 95% probability of a BoE interest rate hike at the November 5 meeting.
• Expectations of further ECB tightening offer limited support to the Euro amid political uncertainty.

EUR/GBP loses 0.38% on Tuesday as stronger-than-expected UK labour market data lifts the Pound Sterling (GBP). At the time of writing, the cross trades around 0.8395, at levels last seen in May 2025.

Data released by the Office for National Statistics (ONS) shows employment rose by 102,000 in the three months to August, up from a gain of 67,000 in the previous period. The unemployment rate unexpectedly fell to 4.7%, its lowest level since July 2025. Meanwhile, regular earnings excluding bonuses increased by 3.7% YoY, above expectations of 3.6% and the previous reading, which was revised up to 3.6%.

The stronger labour market figures give the Bank of England (BoE) more room to address energy-driven inflation pressures stemming from the war in the Middle East. The central bank has kept interest rates unchanged at 3.75% so far this year.

Strategists at BBH note that “GBP is up against most major currencies” after UK August labor market data “reinforced the case for a BoE 25bps policy rate hike to 4.00% on November 5.” They point out that “the swaps curve implies 95% odds of a November BoE rate hike and 100bps of tightening in the next twelve months,” but caution that, “in our view, the BoE may not need to tighten as much as markets anticipate, which is a headwind for GBP.”

BBH argues that “the UK economy is operating below capacity, the policy rate is near the top of the BoE’s estimated 2% to 4% neutral range, and fiscal policy will likely turn more restrictive following the October 28 UK budget,” all of which suggest the central bank may ultimately deliver less tightening than is currently priced.

Meanwhile, the Euro (EUR) remains on the defensive as escalating social unrest across France, Italy and other European countries heightens concerns over fiscal stability and political uncertainty. On the monetary policy front, the European Central Bank (ECB) has raised interest rates twice this year to counter inflation pressures from higher Oil prices. Markets are pricing in further tightening as inflation remains above the central bank’s 2% target.

Economists at Commerzbank acknowledge that “core inflation in the euro area is currently rising only slowly,” but stress that a closer look at the data shows “high energy prices are already pushing up the prices of goods and services.” They argue that this indirect effect is set to strengthen, with “next year, this indirect effect… likely to intensify noticeably, causing the core rate to rise further.”

According to Commerzbank, “core inflation is expected to rise from its current level of 2.5% to over 3% by the fall of next year,” as companies that have been paying elevated energy costs “for more than half a year… are now increasingly passing these costs on.” Against this backdrop, the bank expects the ECB’s projections to move higher, noting that “based on our current forecasts, the ECB is likely to raise its expectations again in December. This supports our expectation of an ECB interest rate hike in December.”