GBP Awaits Key Budget Update, EUR Pressured by Rate Cut Bets, USD Eyes Economic Data and Election Dynamics
GBP
The UK budget announcement on Wednesday is expected to weigh on the Pound as markets anticipate potential increases in government spending and public debt. With economic challenges intensifying, any indication of aggressive fiscal policies or higher borrowing could erode investor confidence and apply further pressure on Sterling.
If the budget fails to address concerns around inflation or fiscal discipline, The Pound is likely to experience heightened volatility, with further headwinds depending on the market’s reception of the government’s plans.
Bank of England Governor Andrew Bailey noted yesterday that inflation is falling faster than expected, hinting at a potential rate cut on the horizon, which could add more downward pressure on Sterling. However, some of this anticipated weakness may already be reflected in the current GBP|USD rate, suggesting a smaller impact from a rate cut than initially expected. A credible budget speech, on the other hand, could support a modest recovery in GBP|USD.
Beyond the budget, this week’s data calendar for GBP is relatively quiet, leaving Sterling’s movement primarily influenced by market reactions to the government’s fiscal outlook.
EUR
EUR exchange rates remain under pressure as markets increasingly price in a potential December rate cut from the European Central Bank. Last week’s disappointing Eurozone data, particularly weak PMI figures, have heightened expectations for a more dovish ECB stance.
This week, the key focus will be Wednesday’s release of third-quarter GDP data, which could confirm Germany’s entry into a shallow technical recession, alongside lacklustre Eurozone growth of 0.2% QoQ. The GDP data will be closely followed by October’s flash CPI, with headline inflation expected to remain below 2.0% YoY and core inflation likely to dip from 2.7% to 2.6%. These data points are not expected to alter market expectations that the ECB aims to lower rates to a neutral level swiftly.
USD
In the U.S. presidential race, Kamala Harris currently leads national polls by 1.8%, with 5.6% of voters still undecided. A potential return of Donald Trump to the presidency could bring a shift towards deregulation and tax cuts, likely boosting market confidence and supporting a stronger USD.
On the other hand, a Democratic win with Kamala Harris may continue the current focus on government spending and social programs, which could add to market uncertainty and USD volatility.
Historically, following Trump’s election in November 2016, GBP|USD saw a 2% drop in the subsequent month, a factor to consider in the current environment.
This week’s US economic calendar is filled with high-impact releases, including the latest payroll and PMI data, alongside the preliminary estimate for third-quarter GDP. A stronger-than-expected GDP reading could bolster USD, as markets adjust their expectations for future Federal Reserve rate cuts.
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