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The pound sterling traded higher on Wednesday, while the euro declined. The British currency’s gains were driven by UK inflation data for September (3.5%)—which came in stronger than expected.
As of 12:10 Moscow time, the pound sterling had risen 0.07% against the dollar to 1.3392, while the euro fell 0.19% to 1.1215.
The dollar continues to show weakness. "In our view, this reflects a combination of concerns related to AI, along with a correction of overheated long positions and short-term overbought conditions," noted Francesco Pesole, a currency strategist at ING.
Pesole added that the decline in oil prices is once again exerting pressure on the dollar, noting that "a brief drop in Brent crude prices—triggered by unconfirmed reports of progress in Middle East negotiations—was enough to push the DXY index down to 101.50."
There are virtually no significant events on the US economic calendar today, following yesterday’s decline in new housing starts. Regarding monetary policy, Federal Reserve Governor Christopher Waller maintained a "hawkish" stance, signaling his readiness for further policy tightening if necessary, while Vice Chair for Supervision Michelle Bowman adopted a neutral position ahead of key inflation and employment data due before the October 27–28 FOMC meeting.
Although the acceleration of headline inflation to 3.5% in September and the rise in core services inflation to 3.7% reinforce expectations for a Bank of England rate hike in November, analysts emphasize that the strengthening of the pound is largely driven by dollar weakness rather than purely domestic factors.
Chris Turner, Global Head of Markets at ING, noted that expectations surrounding the upcoming budget remain a key domestic factor monitored by market participants, adding that markets are pricing in a scenario that "will not deliver any real surprises."
As for the euro, it continues to face pressure from political instability in France; the yield spread between 10-year French government bonds (OATs) and German Bunds has widened to 157 basis points ahead of a credit rating review by Moody’s this Friday.
ING maintains a technical outlook in which the EUR/USD pair is expected to consolidate within the 1.120–1.125 range in the near term, with particular focus on the EUR/CHF pair as a key indicator for assessing French-related risks—support has emerged near the 0.9230 level, close to the 200-day moving average. ING expects the NZD/USD pair to trade above the 0.570 level through the end of the year, while the EUR/HUF pair is projected to remain largely within the 362–364 range.
For this scenario—which assumes a weak dollar and a resilient pound—to change, the markets would need to see either a sharp acceleration in US inflation or a major escalation in geopolitical tensions, which could trigger an energy shock and reverse the dollar’s current weak trend.