GBPUSD recovery stalls on UK inflation day

US Dollar bears take a breather amid dicey markets

Market sentiment is mixed early Wednesday, with geopolitical news and central bank comments keeping traders cautious ahead of key data this week. The US dollar halted a three-day losing streak, gaining against most currencies (except the Japanese yen), as well as gold and crude oil prices.

On Tuesday, the US Dollar fell for the third day, driven by weak US housing data and comments from Kansas City Fed President Jeffrey Schmid, who noted rates are still restrictive but not excessively so. Geopolitical tensions also weighed on market sentiment, with news of Chinese, Ukrainian and Russian actions adding uncertainty. The People’s Bank of China kept rates unchanged, while concerns about Chinese vessel activity and Russia’s nuclear plans added to the risk.

Amid these plays, the US Dollar Index (DXY) breaks its losing streak but is still on track for its first weekly loss in eight weeks. This leaves room for optimism in other currencies and commodities, though overall trading momentum remains subdued.

Mixed ECB signals test EURUSD bulls, USDJPY bucks the trend

The US Dollar's weakness didn't boost EURUSD as expected, with weak Eurozone inflation data and mixed comments from European Central Bank (ECB) officials. On Tuesday, ECB's Fabio Panetta suggested moving toward a neutral policy, possibly even expansionary, while Madis Muller said there was no need for larger rate moves now.

Meanwhile, USDJPY overlooked Japan's export rebound from a 43-month low, as verbal interventions by Japanese policymakers lost their impact. The Yen remains the only major currency weakening against the US Dollar.

GBPUSD bears the burden of the UK’s economic uncertainty

Similar to EURUSD, the GBPUSD struggles to take advantage of the US Dollar’s weakness amid unclear updates from the UK. On Wednesday, The Resolution Foundation, a UK think tank, questioned the accuracy of Britain’s labor market data, complicating the Bank of England's (BoE) decisions on rate cuts. Meanwhile, BoE Governor Andrew Bailey emphasized a gradual approach to rate cuts, stressing the importance of monitoring services inflation closely.

Notably, the latest UK inflation data for October supports the BoE's resistance to sharp rate cuts, easing pressure on GBPUSD during its initial release.

Antipodeans trade mixed

Commodity-linked currencies like AUDUSD and NZDUSD pause their three-day rebounds amid mixed signals from China and disappointing domestic updates. Meanwhile, USDCAD remains under pressure, supported by strong Canadian inflation data.

Australian Treasurer Jim Chalmers highlighted a tougher fiscal outlook due to concerns over China and local job markets. However, Australia’s Leading Index moved into positive territory for the first time since November 2023. In New Zealand, there were no major updates besides a weaker GDT Price Index.

On the other hand, Canada’s inflation improved in October, with both the headline CPI and the Bank of Canada's preferred CPI showing stronger conditions. This, along with a recovery in crude oil prices, weighed on USDCAD.

Gold retreats, Crude Oil struggles to defend recovery

Gold prices end their two-day rally, weighed down by a shift in sentiment and a rebound in the US Dollar. Crude oil, on the other hand, lacks clear direction after two days of gains. The International Atomic Energy Agency (IAEA) reported that Iran agreed to halt production of near bomb-grade uranium, which initially tests the oil buyers. However, a larger-than-expected build in weekly crude oil inventories, according to the American Petroleum Institute (API), has recently exerted downside pressure on the black gold.

Bitcoin refreshes all-time high, Ethereum dwindles

Crypto buyers are upbeat over news that the Trump administration plans to appoint crypto lawyer Teresa Goody Guillén as the next SEC chair, helping Bitcoin (BTCUSD) reach a new all-time high near $94,000. However, Ethereum (ETHUSD) pulled back from a weekly high and remains sluggish, with bearish signals emerging from on-chain and derivatives data.

Latest moves of key assets

• WTI crude oil struggles to defend the previous two-day recovery around $69.30, mildly bid by the press time.
• Gold snaps a two-day rebound while retreating from a week’s high to $2,628 at the latest.
• The USD Index prints the first daily gain in four, posting minor gains near 106.30 as we write.
• Wall Street closed mixed but the Asia-Pacific shares edged higher. However, European and British equities lack clear direction during the initial trading hour.
• BTCUSD remains on the front foot around the all-time high, mildly bid near $92,600, whereas ETHUSD struggles to recover around $3,100 by the press time.

Central bankers eyed…

Looking ahead, a series of central bank officials, particularly from the ECB, BoE, and the Federal Reserve, will drive intraday trading, with a light calendar elsewhere. Hawkish comments from Fed officials, combined with mixed ECB signals and strong UK inflation, could test EURUSD and GBPUSD traders. However, in the absence of surprises, the US Dollar may see a corrective bounce, putting pressure on gold, crude oil, and other major currencies.

Predictions for Key Assets

• Recovery Expected: USDCAD, USDJPY, US Dollar, Silver, BTCUSD, ETHUSD
• Further Downside Likely: AUDUSD, NZDUSD, GBPUSD
• Mostly Sideways Expectations: Nasdaq, Gold, DJI30, USDCNH
• Slow & Gradual Fall Expected: DAX, FTSE 100, EURUSD, Crude Oil

May the trading luck be with you!