The Euro (EUR) experienced a volatile trading session yesterday, initially rising on the back of a weakening U.S. Dollar (USD), but later giving up gains as the USD rebounded and European Central Bank (ECB) rate hike expectations faded on the back of subdued inflation figures. The Pound (GBP) was largely directionless amid a lack of U.K. economic data and investor caution ahead of the Bank of England‘s interest rate decision. Despite disappointing Chinese data, the Australian dollar (AUD) remained directionless, while a rise in unemployment led to a decline in the New Zealand dollar (NZD).
The Canadian Dollar (CAD) weakened as oil prices dipped slightly. Today’s manufacturing PMI is expected to further highlight the contraction in the Canadian sector. The focus now shifts to today’s important employment and manufacturing data, as well as the upcoming Federal Reserve decision.
The GBP/EUR exchange rate remained steady on Tuesday, trading around €1.1468 (EUR1 = USD1.0544). ECB policymaker Francois Villeroy de Galhau confirmed that cooling inflation in several Eurozone areas justified the recent pause in interest rate hikes, reflecting the ECB’s decision-making process.
The Pound saw volatile trading as investors moved into safe-haven assets following reports of rockets being fired from Yemen into Israel, causing GBP to fall against these assets. However, the Pound managed to gain against riskier currencies such as the AUD, but these gains were likely limited by UK economic pessimism and tempered Bank of England rate hike expectations.
The final manufacturing index for October could impact the Pound if it confirms previous contractions. Easing cost pressures indicated in the report could negatively impact the Bank of England’s interest rate bets. German unemployment data due on Thursday is expected to show an increase from 5.7% to 5.8%, which could put downward pressure on the common currency by negatively impacting the EU labor market.