The euro keeps upward momentum and trades near 1.1263, while the pound holds around 1.3489. The principal support for both currencies is a notable recovery in the Treasury market: yields are falling, which directly weighs on the dollar. The cause is political—midterm results gave Democrats majorities in both the House and the Senate.
Democrats did not reach two-thirds majorities, so Donald Trump retains veto power and has already pledged to be "Mr. Veto." The new Congress will convene only in early January, yet the market is already reacting to the changed balance. Democrats have launched large investigations of the administration and pledged to seek an end to the war in the Middle East, which triggered a sharp oil sell-off: WTI fell about $10 during the day, from $96 to $86. Why does that matter for the dollar? Because cheaper oil lowers the risk of persistently high inflation and, with it, the case for further aggressive Fed tightening. The Fed left the policy rate at 3.75–4.00% on October 28 amid a 10–2 split, and many market participants now expect the war to be resolved, which supports gold.
Yesterday's U.S. data were mixed. ADP showed private sector payrolls rose by 86,000 in October versus a 67,000 forecast; the same increase was reported for September. The dollar rose on the print: a strong labor market gives the Fed more room to fight inflation. The ISM services index was slightly weaker than expected at 54.5 versus 54.9 in September. There is no panic: the level remains very high, which also supported the dollar. S&P Global's services PMI fell to 56.1 from 57.9 but remains firmly in expansion.
For the euro, the picture is mixed. Eurozone inflation in October was 4.0% against the ECB's 2% target, i.e., roughly double, while core inflation remained at 2.5%. That will keep pushing the regulator toward higher rates: the deposit rate is 2.50%, and the next 25-bp step to 2.75% is expected on December 17. That partly supports the euro. However, business activity is slowing, and it is notable this occurs amid high inflation.
October S&P Global data show the eurozone composite PMI fell to 51.7 from 53.1 in September, and the services PMI dropped to 51.4 from 53.0, a four-month low. Both remain above 50, but the pace is slowing, and the report contains worrying details: new orders nearly stalled after three months of growth, employment fell for the first time since May, and business expectations slipped to a May low. Country dispersion is pronounced: service activity plunged to 46.2 in France, while Germany rose to 52.5. With high rates and high inflation, such slowing leaves the euro with limited resilience; S&P Global already warns further cooling could question additional ECB tightening in 2027.
Now a look at the calendar. European releases today include orders and industrial production in Germany and France, Italian retail sales, and eurozone producer prices. German orders attract attention after a prior 10.6% slump and an expected near 5% rebound, while French industrial production is seen returning to 0.4% growth after a 0.3% decline. The PPI refers to September and is unlikely to alter the picture materially: month-on-month PPI is forecasted to be +2.5% after +1.9% in August, and year-on-year at +10.9% versus +8.2% previously. That is very high producer inflation, so the euro may react, but today's focus is elsewhere.
The day's main event is the Bank of England rate decision. Despite pressure earlier this week, the pound was repeatedly bought on dips. Markets expect a hike to 4.00% from 3.75%—a move many consider all but priced in, given a still tight labor market and rising inflation. If votes split in favor of a more aggressive step or the policy statement reads hawkish, the pound could rally. UK services PMI printed 52.8 (final) versus 52.1 in September, which supports the currency. What Governor Andrew Bailey will say matters for the pair's direction.
U.S. weekly initial jobless claims are due; the consensus is 197,000 versus 194,000 last week. Fed speakers Beth Hammack and Thomas Barkin will speak; I expect a cautiously hawkish tone. From the ECB we will hear President Christine Lagarde (who leaves office on February 7), and Joachim Nagel—a candidate to replace her—may speak; his odds appear to be easing as Berlin reportedly moves away from him. Nominations for Lagarde's successor are due November 6, and finance ministers will discuss the matter on November 9. Nagel is likely to speak firmly; that could, to some extent, help the euro.
Technical picture for EUR/USD
On the hourly chart, a sell level is 1.1272 on rallies: a false break there offers a short opportunity targeting 1.1245. A break and close below that range would send EUR/USD to 1.1214, with a deeper target at 1.1177, where I would consider buying on a bounce for 25–30 pips. Longs from 1.1214 and 1.1245 are possible on false breaks as continuation of the bull trend. A break and hold above 1.1272 with a retest would be a buy toward 1.1298, and the further target remains 1.1336, where I would look to short bounces for about 35 pips. Shorts from 1.1298 or 1.1272 are only justified on false breaks.
Technical picture for GBP/USD
GBP has a path to continue the bull market, but everything hinges on the Bank of England. In a pre-decision correction I favor aggressive buys on false breaks of 1.3476 or 1.3454, aiming for a breakout to 1.3500. A hawkish BoE would open the way to 1.3527 and 1.3549, where I would look to short bounces for 20–25 pips, and allow shorts from 1.3527 and 1.3500 on false breaks. If the BoE hikes but signals that subsequent steps will depend on data, geopolitics, and U.S. policy, the pound could remain range-bound. In that case a false break of 1.3500 offers a short toward 1.3476 and 1.3454; I would only buy the bounce from those levels on a confirmed false break. I look to buy bounces from 1.3428, targeting 25–30 pips.
