As we end another week, FX (and the world) has been anything but quiet, as it would be during the week of my 30th birthday... Escalation in the Middle East has led markets to pricing in a greater risk of a fully-fledged conflict in the region which has clouded the last week in many ways. When the Governor of the Bank Of England says the conflict 'will make it impossible to stabilise oil prices and leave the global economy vulnerable to a 1970s-style energy shock' in a Guardian exclusive, you sit up and take note... Hence, we've seen some big shifts in the FX market; here's what you need to know!

Key Updates:

• GBP/USD dropped by 2.24% this week, hitting its lowest point since mid-September as BoE hints at more aggressive rate cuts.
• US dollar strengthened due to market scepticism around the Fed's expected rate cuts, as stronger-than-expected job data could delay any easing.
• October is packed with critical reports: look out for US jobs data, UK retail sales, and Eurozone PMI readings. These will play a key role in shaping FX trends in the coming weeks.

GBP

The Pound took a hit this week as Bank of England Governor Andrew Bailey hinted at more aggressive rate cuts later in the year. With inflation still above target, but showing signs of easing, the BoE is caught in a tough position. Next week’s UK employment and inflation data (CPI on 18th October) will be crucial in setting market expectations for the scale of future cuts. Bailey also warned of a Middle East oil shock risk should the conflict worsen. With the Euro gaining ground and the Dollar rallying, the Pound's weakness is persisting towards the end of the week.

USD

Jobs and Inflation Driving Sentiment helped the US dollar make a strong comeback, one of the many reasons for reversing the USD outlook over the past week. Investors are closely eyeing US labor market data, especially with non-farm payrolls due out at the end of October (expected to grow by 140,000 in September). Strong job numbers could delay further Fed rate cuts, while weak data could reignite the debate over monetary easing. Keep an eye on the US Consumer Price Index (CPI) next week, as it will also influence the Fed’s next steps.

The Dollar was also boosted by safe-haven demand as investors weighed the widening Middle East conflict and its impact on the global economy.

EUR

The Central Bank is in Focus as the Euro has been relatively stable, though it did rise against the Pound this week. The European Central Bank (ECB) is expected to cut interest rates by 0.25% in mid-October as they struggle with weak inflation and slowing growth. Additionally, PMI figures due later this month could signal further economic weakness across the Eurozone. These factors are likely to drive volatility in the EUR/USD pair​.

Final Thoughts:

It’s an unpredictable time in FX markets, with the dollar’s strength defying expectations, the euro facing headwinds, and the pound under pressure from looming rate cuts. If you're planning any conversions, it may be wise to stay informed about upcoming economic data, particularly in the next two weeks. As always, we’re here to help you navigate the fluctuations.

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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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