Welcome to this week’s currency market update. While the FX market has been buzzing, it’s fair to say it’s had less drama than Donald Trump’s recent assassination attempts, as well as the US election race in general. With the Champions League back in action and no one quite understanding the new format, we hope that our update is a bit clearer but just as exciting. As we gear up for key central bank decisions and other surprises, here's a breakdown of the key movements and what you should keep an eye on in the days ahead.

Key Updates:

• GBP Strength: The pound had a positive week amidst international monetary changes as the market correctly anticipated the Bank of England's rate decision. Speculation suggested a potential pause in rate hikes, though inflation and wage growth remain key concerns.
• USD Eases: The Federal Reserve has made its first rate cut in over four years, reducing the key lending rate by 0.5 percentage points to 4.75%-5%. Jerome Powell emphasised the move aims to support the job market as inflation eases​.
• EUR Stability: The euro remains relatively steady as ECB policies and eurozone growth forecasts remain key to its trajectory.
• Central Bank Moves: Watch for further policy changes from the BoE, Fed, and ECB in the coming weeks to understand currency movement into Q4.

GBP

The pound is currently trading at 1.328 against the US dollar and 1.17 against the euro.

The British pound has been holding relatively steady ahead of the Bank of England’s next policy decision. While inflation remains a concern, the UK's revised economic outlook shows resilience, with better-than-expected growth figures. Although some expect the BoE to pause on further rate hikes, inflation pressures from wage growth still make it possible that the central bank will maintain a hawkish tone.

Last month, rates were cut from 5.25% to 5%, the first reduction since the pandemic, but the Bank has decided not to cut the rate again. If the Bank of England puts its interest rate up, people pay more interest on borrowed money - unless it is borrowed at a fixed rate.

USD

The US dollar has started to weaken following the Federal Reserve’s first interest rate cut in over four years, reducing the key lending rate by 0.5 percentage points to 4.75%-5%. This signals a dovish shift, as the Fed responds to easing inflation and concerns about the labour market. Projections suggest further cuts may follow by the end of the year, potentially driving the USD lower in Q4. Key data on inflation and GDP will shape the Fed's next steps​.

EUR

The euro remains under pressure due to sluggish economic growth in the eurozone. Despite this, a strong current account surplus offers some support for the currency, particularly as the USD weakens. However, the European Central Bank (ECB) might begin cutting rates in 2024 to stimulate the economy, especially with persistent weak demand from key sectors like Germany's industrial sector. The upcoming ECB meeting will be crucial for determining the outlook for the Euro, especially against the dollar​.

Key Date: Watch for the ECB's next policy meeting as well as any updates on eurozone economic data, particularly inflation figures, which could influence rate cuts.

Final Thoughts:

The recent rate cuts by the Federal Reserve, along with upcoming decisions from the Bank of England and the ECB, will shape the currency landscape. The USD is expected to weaken further if the Fed continues easing, while GBP and EUR remain sensitive to central bank policy adjustments. Keeping an eye on economic data and upcoming central bank meetings will be crucial for understanding how these movements impact your currency conversion needs.

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If you need any advice or have questions about how these trends might affect your specific situation, don’t hesitate to reach out!

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