US Dollar Continues To Rally (EUR/USD), The GBP Could Be Face Severe Challenges (EUR/GBP, GBP/CAD)

Summary:

• The Euro gained some support this Tuesday.
• The challenges facing the pound are now so severe.
• GBP/CAD exchange rate significantly recovered from an earlier decline.

Euro data due this week

The market is reflecting bearish signals for this currency pair. After exhibiting a knee-jerk reaction to the Federal Reserve interest rate decision, the EUR/USD cleared the low of December 2002 (0.9859), but new data prints coming out of the Euro Area may halt the recent slide in the exchange rate as inflation is anticipated to reach a record high. Following yesterday's disappointing performance versus the dollar, the euro gained some support this Tuesday. As the eurozone enters the winter months, fundamental headwinds still exceed any kind of positives, leaving the currency vulnerable to downside risk. Markets appear to be anticipating a shift in the Fed's current hawkish stance or a significant decline in inflationary pressures to turn the tide for the EUR/USD. Some analysts anticipate the euro to remain weak until then.

✕ EUR/USD Price Chart

GBP could face a poor future

The market is reflecting bearish signals for this currency pair. According to a respected economist, the British pound is undergoing a significant downward adjustment that won't end until it drops below parity. The challenges facing the pound are now so severe, according to Lawrence Summers, a former American secretary of the Treasury, director of the National Economic Council, and chief economist for the World Bank, that he is perplexed that the IMF has not issued a statement.

In an effort to persuade the markets that it has the skills to combat rising inflation rates, the Bank of England will speak. Huw Pill, the chief economist at the Bank of England, stated as much when speaking at a Barclays event. Pill stated that the central bank was preparing to present a "strong policy reaction" at its November 03 policy meeting in an effort to calm the UK gilt markets and a battered pound.

✕ EUR/GBP Price Chart

GBP/CAD recovery

The Pound to Canadian Dollar exchange rate has significantly recovered from an earlier spectacular decline that sent it to all-time lows in the first session of the week, but the recovery appeared to falter before 1.50, raising the possibility that its most recent declines have given Sterling access to a new and lower trading range. Monday's volatility appeared to be related to Chancellor Kwasi Kwarteng's budget-like announcement on Friday, which included a number of stimulative policy commitments. These commitments will almost certainly result in significant increases in the issuance of government bonds as well as a future increase in the budget deficit.

These included not only the simple provision of assistance with energy bills but also outright tax cuts and other giveaways, the announcement of which was followed by sharp losses for Sterling. These went beyond the cancellation of tax increases planned by the previous government and were not limited to the simple provision of assistance with energy bills.

✕ GBP/CAD Price Chart

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