FOMC Interest Rate Decision In The Spotlight (EUR/USD), HSBC Claims GBP Is Close To Long-term Base (EUR/GBP, GBP/ZAR)

Summary:

• A big increase in monetary policy is unlikely to assure a rise in the value of the US dollar.
• Markets already struggling with the UK's long-standing and well-known structural problems.
• BoE interest rate decision due Thursday.

Fed interest rate decision in the spotlight

The market is reflecting bearish signals for this currency pair. At 18:00 GMT, the biggest central bank in the world is expected to make a controversial monetary policy announcement, and the markets are certainly focused on it. The market's reaction may be biased because speculation through Fed Fund futures and other channels has made a further 75 basis point rate hike from the group almost certain.

It's crucial to remember that no single aspect of this well-publicized incident should be seen as a firm indication for speculation. A big increase in monetary policy, such as a rate hike of 75 basis points, is therefore unlikely to assure a rise in the value of the US dollar and send US indices into a downward spiral.

✕ EUR/USD Price Chart

GBP appears to be finding some balance

The market is reflecting bearish signals for this currency pair. The largest bank in the UK, HSBC, claims that the British pound is close to a long-term base. HSBC analysts state that "after showing signs of vertigo, GBP appears to be finding some balance" in a briefing on foreign exchange research.

Declines followed the market's reaction to tax cut proposals made by the former prime minister Liz Truss that were to be paid for by further borrowing, alarmed investors who questioned whether the UK's debt condition would prove to be sustainable.

Markets were already struggling with the UK's long-standing and well-known structural problems, especially the budget deficit and the current account deficit, when the "mini budget" fiasco broke out.

✕ EUR/GBP Price Chart

ZAR almost worst performing currency in G20

The Pound to Rand rate has more than made up for its September losses in a recovery that has most recently plateaued near 2022 highs, but if the Dollar stays weak or if Sterling is hurt by Thursday's Bank of England (BoE) decision, it will be at risk of a corrective setback later this week. The total result was an almost 12% comeback from a late September low, which saw GBP/ZAR erase much of the year's previous losses in the process. South Africa's Rand was nearly the worst performing currency in the G20 grouping for October while the Pound was among the strongest.

The Rand's underperformance occurred during yet another strong month for the Dollar and a stretch of unusually marked weakness for China's Renminbi. Local data that showed the manufacturing sector as virtually the only bright spot in an otherwise cooling South African economy may also have contributed to the Rand's underperformance.

✕ GBP/ZAR Price Chart

Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com