The European Central Bank (ECB) is already close to the lower bound of borrowing costs and may opt for just one more 25 bp rate cut by year-end. Meanwhile, the single currency remains under pressure amid uncertainty over the bloc’s growth momentum. That said, the situation has improved slightly after France’s new government led by Sébastien Lecornu avoided two no-confidence votes thanks to an alliance of centrists and socialists. Even so, concessions were necessary—pension reform has been promised to be postponed at least until the 2027 presidential election, while cuts to social spending are inevitable as the European Commission insists on higher defense outlays. France’s public debt, it should be recalled, remains the highest in Europe: in 2024 it stood at 113.0% of GDP. Kevin Hassett, head of the White House National Economic Council, suggested that a stopgap funding bill for the federal government could be approved as soon as this week, which lent moderate support to the US dollar.
GBP/USD
The pound is losing ground in GBP/USD during the morning session, extending the corrective move formed yesterday: the pair is testing 1.3375 for a downside breakout as participants await new catalysts. Tomorrow at 08:00 (GMT+2), the UK will release September inflation figures, which could significantly shape expectations for Bank of England easing: forecasts suggest core CPI (YoY) will accelerate from 3.6% to 3.7%, while headline is seen rising from 3.8% to 4.0%. Markets will also watch the Retail Price Index: the annual gauge is expected to tick up from 4.6% to 4.7%, with the monthly reading holding at 0.4%, adding notable pressure on the BoE regarding rate cuts. Earlier, MPC member Megan Greene argued in favor of keeping rates unchanged at least until March 2026. Meanwhile, in a recent speech Governor Andrew Bailey focused less on monetary policy and more on the lingering effects of Brexit, which he believes will weigh on the economy for a long time. In the US, attention remains on the government shutdown, which has reduced the flow of macro publications. Notably, traders did not receive the labor market report at the start of the month, reinforcing expectations for Fed easing at the October meeting.
AUD/USD
The Australian dollar is edging lower in AUD/USD, correcting after yesterday’s upward impulse: the pair is testing 0.6500 for a downside breakout as investors hesitate to open new positions before fresh drivers emerge. In Australia, October business activity data will be published on Friday at 00:00 (GMT+2), followed by a speech from RBA Governor Michele Bullock at 02:05 (GMT+2). The RBA currently maintains a cautious stance: in late September, officials unanimously kept the cash rate unchanged at a relatively high 3.60%, which is nevertheless the lowest since April 2023. The decision reflected rising global risks to trade and inflation. The Bank also noted that uncertainty linked to US trade tariffs has eased recently, though conditions remain fragile—especially amid escalating US–China trade tensions. Recall that US President Donald Trump announced 100.0% tariffs on Chinese goods from November 1, later raising them to 150.0%. According to the White House, the measures are a proportionate response to China’s export curbs on rare earth metals, where China supplies nearly 70.0% of global exports. Meanwhile, Monday’s China data were fairly upbeat: Q3 GDP grew 1.1% q/q (vs 0.8% forecast), while the annual rate slowed from 5.2% to 4.8%. Industrial production in September accelerated from 5.2% to 6.5% (vs 5.0% expected).
USD/JPY
The US dollar is gaining in USD/JPY, extending a very short-term “bullish” trend: the pair is testing 151.20 for an upside breakout. In focus for investors and forex traders are the elections for Japan’s prime minister in the lower house, scheduled for today. Previously, the Liberal Democratic Party (LDP) reached a deal to form a coalition with the Japan Renewal Society party, expected to secure the majority needed to elect LDP leader Sanae Takaichi as prime minister. She is expected to pursue more protectionist policies, which could complicate further monetary tightening by the Bank of Japan. On Wednesday at 01:50 (GMT+2), September trade data are due: forecasts see exports rising 4.6% after –0.1%, and imports up 0.6% after –5.2%, widening the trade surplus to JPY 22.0 billion from a JPY –242.5 billion deficit previously. Meanwhile, the US dollar is again pressured by the ongoing shutdown: yesterday, the Senate failed for the eleventh consecutive time to pass the House-approved stopgap funding bill—only 50 senators voted in favor, short of the 60 needed.
XAU/USD
XAU/USD is slipping again after Monday’s quick rebound from last Friday’s correction to fresh record highs: prices are testing 4320.00 on a downside break as traders await new catalysts. Yesterday, the US Senate once more rejected the Republican-sponsored stopgap funding bill. At the same time, confidence in imminent Fed easing is growing: according to CME Group’s FedWatch Tool, over 90.0% of analysts expect a 25 bp cut at the October meeting, with odds of a larger 50 bp move also rising. Finally, gold faces pressure from expectations around US–China trade talks set for October 31. If no new deal is reached, US President Donald Trump may impose 150.0% tariffs on Chinese goods in addition to the 30.0% already in place.