Dollar Firms as Central Bank Week Begins; Budget Risk Hangs Over Sterling
The dollar firmed on Tuesday as a rebound in tech stocks revived risk appetite. Traders are bracing for five central bank decisions in three days, plus a UK Budget that could reshape the outlook for gilts, Britain’s government bonds, and sterling.
Dollar: Waiting on Warsh
The dollar index held near a one-week high around 102.04 as last week’s rush into safe havens faded and a weaker euro lent support, Reuters reported. The yen, one of last week’s best performers when worries about AI stocks drove investors to safety, slipped as risk appetite returned.
The Fed is expected to skip a hike when its two-day meeting ends Wednesday. Even so, CME’s FedWatch tool, which turns futures prices into rate odds, put the chance of at least one hike by December at about 73% on Monday. US durable goods orders and consumer confidence data are due Tuesday, followed by third-quarter GDP and September PCE inflation on Thursday.
Euro: France Overshadows the ECB
France remains the euro’s main weakness, and the euro has slipped to a near two-week low around 1.1165, down about 1.4% this month. The yield premium on French 10-year bonds over German debt, meaning the extra interest France pays to borrow compared with Germany, reached about 167 basis points ahead of this week’s meeting, up from 92 at the ECB’s September meeting, Reuters reported.
The ECB is expected to hold its deposit rate, the rate it pays banks to park cash with it, at 2.5% on Thursday. ECB President Christine Lagarde has said the fix for France’s finances must come from fiscal policy at home. Banque de France Governor Emmanuel Moulin said earlier this month that he does not think the ECB needs to intervene “as of now, given the current conditions.”
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See all EUR/USD forecastsPound: Healey’s First Test
Chancellor John Healey delivers his first Budget on Wednesday. The Financial Times reported that Healey will give two state-backed lenders, the National Wealth Fund and the British Business Bank, a £20.4bn capital boost over five years. Deutsche Bank said that removes one large Budget Day risk, though it still adds to borrowing, which can push gilt yields up.
Markets treat a quarter-point Bank of England hike to 4% on November 5 as almost certain, so sterling’s support depends on the Budget not shaking that view.
US Dollar Index Technical Analysis: DXY Climbs Above 102 as 102.43 Comes Into Focus
The US Dollar Index is trading near 102.09 on the 4-hour chart. Buyers defended the 101.54 support zone several times last week, helped by a rising trendline, a line connecting higher lows. DXY has now moved back above its faster moving average, a line showing the recent average price.
Resistance, where sellers tend to step in, is 102.43, then 102.92. Support, where buyers tend to step in, is 101.54, then 101.18.
RSI, which measures the strength of recent buying and selling, is near 63 and rising above its signal line, a slower average of RSI. My bias is a slight bullish lean while DXY holds 101.54. A close above 102.43 would open 102.92, while a drop below 101.54 would favor sellers.
EUR/USD Technical Analysis: Euro Breaks Below Triangle as 1.1150 Comes Into Focus
EUR/USD is trading near 1.1168 on the 4-hour chart after breaking below its triangle, a pattern where price swings get smaller between a falling top line and a rising bottom line. A break out of a triangle often sets the direction for the next move. The pair has also slipped under 1.1192, a level buyers had defended through October.
The first support is 1.1150, then 1.1113. On the upside, 1.1192 is now the first resistance, followed by 1.1226.
RSI is near 39 and below its signal line, so momentum favors sellers. I stay bearish while EUR/USD trades below 1.1192. A close below 1.1150 would open 1.1113, while a move above 1.1226 would cancel the breakdown.
GBP/USD Technical Analysis: Pound Slips Below 1.3356 as 1.3295 Comes Into Focus
GBP/USD is trading near 1.3333 on the 2-hour chart. After a week stuck between 1.3356 and 1.3407, the pound has slipped below the bottom of that range. Price is now under the faster moving average and resting just above the slower one.
The first support is 1.3295, then 1.3264. The broken 1.3356 floor is now the first resistance, followed by 1.3407.
RSI is near 39, showing mild selling pressure. In my view, the pound has a slight bearish lean below 1.3356, and Wednesday’s Budget could decide the next move. A close below 1.3295 would open 1.3264, while a move back above 1.3356 would favor buyers.