US – FOMC decision due today; shutdown continues; Bank of Canada also in focus
The Federal Reserve announces its monetary policy decision today, one hour earlier than usual (18:00 GMT) due to the US clocks remaining on daylight time until Sunday.
Markets widely expect a 25-basis point rate cut, with recent September CPI data offering no reason to oppose such a move. However, attention will turn to Chair Jerome Powell’s post-decision remarks, which could shape expectations for December and January. While an acceleration in easing seems unlikely, any cautionary tone could prompt a USD rebound.
The US government shutdown enters day 28, with no progress in the Senate. The 13th vote failed again, falling six votes short of passing the House-approved temporary funding package.
The Bank of Canada announces its rate decision a few hours earlier than the Fed, expected to cut the overnight rate from 2.5% to 2.25%. Given the Canadian dollar’s recent rebound against the USD, the risks appear skewed toward renewed CAD weakness following the meeting.
GBP – Sterling breaks lower as Budget uncertainty deepens
Sterling’s sell-off accelerated yesterday, following a week of consistent declines. GBPUSD fell each day last week, while GBPEUR also retreated from short-term highs, ending the week around 0.6% lower.
The moves reflect broad-based GBP weakness rather than strength elsewhere. Softer UK food price inflation has increased speculation around further Bank of England rate cuts, while persistent uncertainty over the upcoming Budget continues to weigh on sentiment. Media speculation remains focused on tax-raising measures, with little discussion of spending restraint - an imbalance that may concern markets.
With a light UK data calendar this week, sterling appears vulnerable to further downside unless offset by negative developments elsewhere.
EUR – Euro holds firm, but risks of further easing may be building
The euro has quietly strengthened against several major currencies, including GBP, USD, CAD, and JPY. However, it has underperformed against the CHF, SEK, and NOK. Recent euro area data and surveys suggest modest progress, but underlying challenges remain, particularly in France and Germany, where political and economic pressures continue to constrain momentum.
Inflation remains well anchored, and downside risks persist. In my view, the European Central Bank could consider further rate cuts over the coming meetings, an outcome markets are not currently pricing in. The recent collapse in global shipping costs adds to the case for caution. While the euro’s current strength may hold for now, it could be tested as we approach year-end.
Neil Parker
With years of hands-on experience navigating the dynamic landscape of global currencies, we specialise in providing actionable insights, tailored strategies, and cutting-edge analysis for…
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