Investing.com — Sterling traded slightly lower on Thursday while the euro also slipped, as the dollar steadied after a muted reaction to the Federal Reserve’s policy hold and investors awaited U.S. inflation and growth data.
Sterling was down 0.03% against the dollar at $1.3325, while the euro slipped 0.08% at $1.1149, as of 07:07 ET (11:07 GMT).
Chancellor John Healey’s Budget kept the deficit on a downward path, with the OBR forecasting 3.4% of GDP for 2027, and added only modest stimulus.
“These are not the sorts of numbers that move the dial for the Bank of England,” James Smith, UK economist at ING, said.
The BoE is on track to raise rates next week and potentially again in February, Smith said, adding that Healey “avoided adding fuel to the fire.” ING also sees a 2027 general election becoming more likely.
The dollar softened after Wednesday’s Fed decision, with the two-year USD swap rate falling about 8 basis points, but ING says the move has little room to run.
“We see limited room for bearish follow-through to yesterday’s mild negative USD reaction on the Fed story alone,” Francesco Pesole, FX strategist at ING, said. “Consolidation of the dollar’s recent gains looks more likely.”
The Fed’s message was hawkish, Pesole said. Chair Warsh said inflation “remains elevated” while the economy is “expanding at a strong pace.” Fed policymakers Beth Hammack and Lisa Cook dissented in favour of a hike.
Markets price 21 basis points of tightening by December. Today’s core PCE inflation for September is forecast at 0.3% month-on-month, in line with consensus, and third-quarter GDP at 3.4% annualised versus the 3.2% consensus. “We expect a modest positive dollar reaction to today’s numbers,” Pesole said.
The European Central Bank is expected to hold rates today. “We don’t think we are at the stage where French bond market turmoil can trigger a significant dovish turn by the ECB, especially with such elevated oil and gas prices,” Pesole said.
Gas prices hit €100/MWh on Wednesday. Pesole said a signal that a December hike is “likely” would be a modest hawkish surprise, but expects a more cautious “possible” or “in play.”
“EUR/USD has shown it’s not yet ready to break below 1.110, and we don’t expect today’s ECB risk event to trigger a major leg lower,” he said. HSBC puts EUR/USD support at 1.1086 and resistance at 1.1244, and GBP/USD support at 1.3165 and resistance at 1.3451.
