EUR/GBP Holds Firm Amid Political and Economic Uncertainty

The EUR/GBP pair traded near 0.8690[1] in Monday's early European session after touching an intraday high of 0.8725. The cross is believed to stay in the known range of 0.8650-0.8750[2] after the slight upsurge as traders balance between political and economic forces on either side of the Channel. Market observers[3] note that political disputes in France and the slow pace of economic performance in the UK have continued to restrain evident directional movement in the duo.

Analysts[4] report that market sentiment shifted to the wary after renewed geopolitical risk as US president Donald Trump threatened new tariffs on China over new export of rare earth products by Beijing. This change of risk-taking capacity gave a slight boost to the Euro since investors needed some form of safety, relative to other currencies in the world. In France, the talks between President Emmanuel Macron[5] and the opposition parties ended with very little tangible result, despite reports of potential postponement of pension reforms, which highlights political instability within the second-largest economy of the bloc.

Market reports[6] point out that in the UK, sterling is under pressure due to the weak economic growth and shaky public finances. A recent survey of recruitment agencies suggested that the labour market[7] remains soft, which increases the speculation that fiscal tightening might be necessary to enable Chancellor Rachel Reeves to hit budget targets. Analysts[8] indicate that this financial frailty has fortified the speculation that the Bank of England (BoE) will cut its rate twice next year, unlike the European Central Bank (ECB), which was more circumspect after President Christine Lagarde had declared the termination of the disinflation cycle.

Market commentators[9] note that EUR/GBP is technically inclined towards upside albeit with a waning momentum. The support is close to the 50-day SMA at 0.8677 with the downside restricted by 0.8650. On the upside, any further gains beyond 0.8700 might open the door to the high in September of 0.8751, pending forthcoming inflation and retail sales figures in the US, which may impact on overall risk sentiment and sterling flows.

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GBP/USD Slips as Dollar Strengthens Amid Tensions

The GBP/USD pair trades slightly lower near 1.3345[10] in Monday's early Asian session, as the US dollar remains resilient despite renewed trade tensions between the United States and China. Market reports[11] point out that the threat of the US President Donald Trump to impose 100% tariffs on Chinese imports beginning on November 1 has brought back market caution, which the Greenback has been basing its safe-haven appeal on. Meanwhile, the measured reaction of Beijing, which protects its exportation of rare earths without further action, has contained market volatility, although it has retained risk sentiment vulnerable[12].

Market reports[13] point out that the US Dollar Index (DXY) expands small gains with traders standing on the alert before the factual data of this week on US inflation and retail sales, which will present additional indications of the course taken by the Federal Reserve (Fed) policy. The expectations of further tightening have been kept at bay with recent softer US job data and weakening inflation[14] readings, but geopolitical and trade risks are underpinning the short-term support of the Dollar. The US markets will be closed during Columbus Day, and therefore, the trading volumes will be low during the session.

Market commentators[[15] indicate that in the UK, sentiment on the Pound is still limited by fiscal and policy considerations. Anticipations that the Chancellor Rachel Reeves[16] can announce more tax cuts in the following Autumn statement have subdued investor confidence; further straining the already fraught UK growth forecasts. The UK three-month-to-August employment report[17] released on Tuesday is also under focus by market participants to see how labour conditions could soften further burdening Sterling.

Analysts[18] indicate that GBP/USD could be supported in the short-term at 1.3300, but the scalp seems limited with growing cross-directional policy cues and increasing risk aversion. In the medium term, though, weak UK fundamentals and continuing fiscal headwinds may again restrain the recovery of Sterling on a broadly steady dollar.

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AUD/USD Steadies Amid China Data and Tensions

The AUD/USD pair traded near 0.6530[19] in Monday’s Asian session after posting around 1.25% losses in the previous trading day. The subdued response of the pair is thought to be as a result of the fact that China released September Trade Balance data[20], which indicated a reduced surplus of CNY645.47 billion as compared to CNY732.7 billion in the past. Chinese exports[21] increased by 8.4% year-on-year with imports also improving by 7.5 percent indicating that China is exhibiting better domestic demand that will provide a temporary boost to the Australian Dollar, as Australia is a strong trade partner of China.

Market reports[22] point out that the revived trade tension between China and the US have dampened the risk sentiment. The fear of a trade war has re-emerged with the announcement of 100% tariffs on Chinese imports by the US President Donald Trump who threatened retaliation against China. The uncertainty has burdened commodity-based currencies such as the Aussie, with investors opting to be safe in the US dollar. Reports[23] that Australia is planning to establish a A$1.2 billion critical minerals strategic reserve in partnership with the US indicate that the country is trying to diversify its supply chains but, as yet, the effects are not felt in the market.

Market commentators[24] note that in the US the upward movement in the Dollar is restrained by the issues of the current government shutdown that has stalled the federal paychecks as well as could potentially interfere with the forthcoming economic publications. The scenario highlights uncertainty in the fiscal side that could undermine confidence before the release of major data this week, such as US Retail Sales and Producer Price Index (PPI)[25] data.

Analysts[26] indicate that the AUD/USD pair technically has an immediate resistance at 0.6560 where the first point of support is 0.6500. A prolonged decline below this may give way to 0.6460. As long as near-term downside risks remain amid geopolitical headwinds, weakening US data and a continued government shutdown may provide the Aussie with its own recovery opportunities towards the later part of the week.

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NZD/USD Rises as Trade Tensions Ease

The NZD/USD pair advanced to trade toward the 0.5740[27] in Monday’s Asian session, extending last week’s rebound as easing trade tensions between the United States and China lifted risk sentiment. It is believed that the New Zealand dollar[28] received a slight boost when US President Donald Trump reversed some of his position on the possibility of imposing another round of tariffs on Chinese imports and that investor fears of a further escalation of the trade war had been alleviated. China as the major export market in New Zealand[29] is an indicator that the trade relations are on the brink, and indications of this nature tend to strengthen the Kiwi perspective.

Market reports[30] point out that the US dollar was a bit pressured by the fact that the current US government shutdown was in its third week, and still, both houses of congress could not come to an agreement regarding a funding bill. The political stalemate is increasing the risk of delays in government expenditures and data releases, further straining the outlook of US growth in the near future. The upcoming US retail sales and industrial production[31] data will be keenly monitored by the investors to provide additional insights on the direction of the economy amid a recent spate of underperforming inflation and employment rates.

Market reports[32] point out that the New Zealand dollar has hit an upper limit due to the dovish nature of the reserve bank of New Zealand (RBNZ). The surprise cut of 50-basis points[33] by the central bank last week was an indication of increasing worry of domestic demand and overseas headwinds and markets are now pricing an extra 25-basis-point cut in the November meeting. The policy difference between the Fed and the RBNZ could curb the further profitability of the pair in case the US data recover.

Analysts[34] indicate that in the near term NZD/USD can be supported at first in the range of 0.5700, but it is resisted in the 0.5780-0.5800 area. The direction of the pair will depend on incoming data of the US and risk sentiment, and a prolonged advancement in the global trade dynamics will be required to prolong the recovery of the Kiwi.

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