Low American Visibility
In the foreign exchange market, it's rather calm at the moment, with reduced volatility. As expected, after profit-taking, the euro has regained control, particularly against the British pound and the Japanese yen. Regarding the Japanese currency, many analysts expect a rate hike by the Bank of Japan (BoJ). We doubt that this will happen this year, which could theoretically help the yen to rebound. On the contrary, we believe that the EUR/JPY pair has a strong chance of reaching the 180 threshold by the end of the year.
The macro point
As expected, the American central bank lowered its key interest rate by 25 basis points last week. That was a given. However, the December cut is far from automatic. We believe that American inflation will remain structurally higher than before Covid, complicating J. Powell’s task. As expected, the Federal Reserve (Fed) lowered its key interest rate by 25 basis points. But the short-term monetary policy outlook is uncertain. Hence the central bank’s caution. Three factors must be considered, making another rate cut in December not automatic. 1. The latest series of rate cuts occurred while job creations slowed during the summer. This slowdown is mainly related to supply constraints in the labor market, exacerbated by stricter immigration policies that the Fed cannot offset by stimulating demand. The data therefore does not show a true cyclical employment slowdown, but rather a labor supply shortage. This should be confirmed when public labor market statistics are released again. 2. The Fed believes that tariffs have temporarily caused consumer prices to rise, but inflation should fall below 3% next year once these effects dissipate. However, this assumption remains fragile. The US does not seem to be returning to the low inflation period observed in the 2000s and 2010s. Moreover, service inflation remains about one point higher than in previous decades, even without considering the effect of tariffs. A scenario of persistent inflation is emerging, in our view. 3. The main argument of the Fed for justifying rate cuts is based on the idea that current monetary policy is restrictive. Yet, financial indicators do not show major tension: US stocks are up 3% since the last Fed meeting, high-yield credit spreads are historically low, and monetary conditions measured by the Chicago Fed are at levels comparable to those of 2022 - a period of high liquidity. The consequence of all this is that there is no need to rush to massively cut rates. The Fed remains data-dependent and has every interest in exercising caution. In a way, the American central bank is like a driver on a snowy road: visibility is reduced and the ground is slippery. In these conditions, it is better to slightly ease off the accelerator than to brake abruptly. In short, do not rush! However, this is bad news for the US dollar. The lack of visibility of short-term US monetary policy is likely to prevent a sustainable rebound. Too many uncertainties.
Technical point
On the side of Central and Eastern European currencies, it is also a period of hibernation. Speculators and financial intermediaries are generally positioned for buying, particularly on the CZK, PLN, and HUF. As a reminder, these currencies are still very sensitive to changes in risk aversion. For now, everything is fine. But if tensions arise in the bond or equity markets, it is not unlikely that they might drop a little. Importantly, they are supported in the long term by key interest rates that should no longer move. The monetary easing phase in the region is over. It must be acknowledged that it started - particularly in Hungary - much earlier than in the eurozone.
The supports and resistances displayed below respectively indicate the low and high points within which rates should move during the week. | Weekly Supports | | Weekly Resistances | |
|---|
| S2 | S1 | R1 | R2 |
| EUR/USD | 1.1430 | 1.1515 | 1.1736 | 1.1780 |
| EUR/GBP | 0.8634 | 0.8690 | 0.8900 | 0.8934 |
| EUR/CHF | 0.9154 | 0.9201 | 0.9311 | 0.9401 |
| EUR/CAD | 1.6130 | 1.6183 | 1.6311 | 1.6388 |
| EUR/JPY | 173.88 | 174.99 | 180.00 | 181.12 |
Announcements to follow
Due to the ongoing shutdown, American economic visibility is low. The ADP employment survey for October, which is usually a minor and unreliable indicator, will draw the traders' attention. However, caution is required when interpreting the figures. On the British side, the Bank of England is meeting this Thursday. The foreign exchange market is divided on the potential for a rate cut. We are in the camp that opts for the status quo due to persistent inflationary pressures and uncertainties over the British budget. We might see a bit more volatility than usual in the British pound this week.
Below are the publications and events that should have a major impact on currency price developments.| Day | Time | Country | Indicator | What to expect? |
|---|
| 11/04/2025 | 04:30 | Australia | Central bank meeting | According to data published last week, inflation has seen its largest increase in two years. No rate cut, in our view. |
| 11/05/2025 | 14:15 | USA | ADP Survey (October) | Previous at -32k. |
| 11/06/2025 | 13:00 | UK | Central bank meeting | Key rate maintained at 4%. |
The information presented in this publication is communicated for purely informational purposes and does not constitute investment advice, an offer to sell, or a solicitation of purchase, and should in no case serve as a basis for or be considered as an incentive to engage in any investment.