EUR/USD dives 0.17% during the North American session on Friday as the Greenback trims its earlier losses as US President Donald Trump tempered his trade rhetoric on China. The pair trades at around 1.1666 after hitting a daily high of 1.1728.

Euro retreats from daily highs as risk appetite improves and Fed remarks stay cautiously dovish

Risk appetite improved ahead of Wall Street open as US President Donald Trump said that high tariffs on China were not sustainable and most likely increase tensions between the two countries. He added that he plans to meet Xi Jinping at the Asian Pacific reunion in South Korea.

After the headlines, the Greenback erased its earlier losses and rose. The US Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of peers, is up 0.09% at 98.42.

The lack of economic data keeps traders leaning on Federal Reserve (Fed) officials crossing the wires. Most of the remarks were slightly dovish, led by Governor Christopher Waller. Meanwhile, St. Louis Fed President Alberto Musalem and Minneapolis Fed Neel Kashkari, although favoring further cuts, stressed that inflation remains hot.

In Europe, the Harmonized Index of Consumer Prices (HICP) was broadly aligned with estimates in September.

Next week, the US economic docket remains empty, but the release of the Consumer Price Index (CPI) figures on Friday is widely awaited by market participants.

Daily market movers: The Dollar appreciates, despite Fed’s dovish comments

• Several Federal Reserve officials spoke on Friday, offering a cautiously dovish tone. St. Louis Fed President Alberto Musalem said he supports a rate cut at the October meeting but reaffirmed his full commitment to returning inflation to the 2% target.
•  Fed Governor Christopher Waller echoed Musalem’s remarks, while Minneapolis Fed President Neel Kashkari noted that the economy “is not slowing as much as we think,” suggesting resilience despite recent data softening.
• Eurozone inflation data came broadly in line with expectations in September, signaling stable price dynamics. Core HICP rose 0.1% MoM and 2.4% YoY, slightly above the 2.3% forecast. Headline HICP also climbed 0.1% on the month and 2.2% on the year, matching both projections and August’s readings.
• European Central Bank (ECB) officials maintained a cautious tone on Friday. ECB’s Olaf Sleijpen said that policy being “in a good place” does not mean it will stay there, noting that the economy has been more resilient than expected. ECB’s Joachim Nagel added that there is no need to act on interest rates for now.
• On Tuesday, Fed Chair Jerome Powell was dovish, acknowledged the weakness of the labor market and added that the central bank should move to more “neutral” interest rates.
• Money markets are fully pricing in a 25-basis-point rate cut at the Fed’s October 29 meeting, with odds at 97%, according to the Prime Market Terminal probability tool.

Technical outlook: EUR/USD slips below 100-day SMA, further downside eyed

EUR/USD’s technical outlook remains bearishly biased, despite improving somewhat in the week. After reaching a weekly high of 1.1728, the shared currency tumbled below 1.1700, opening the door for further downside.

The EUR/USD first support would be the 100-day Simple Moving Average (SMA) at 1.1648. Once cleared, the next stop would be the 1.1600 figure, followed by 1.1550 and 1.1500.

On the flip side, resistance is seen at the 50-day SMA at 1.1691, 1.1700 and the daily high of 1.1728. A breach of the latter will expose 1.1800 and the July 1 high at 1.1830.

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The week that was

The US Dollar (USD) spent much of the week on the back foot, retreating from last week’s highs and leaving the US Dollar Index (DXY) with a softer tone. That said, the index found some support around the 98.00 area but stayed stuck in the sideways range it’s been in since early August.

The pressure on the Greenback had been building as markets priced in more Federal Reserve (Fed) rate cuts and as the federal government shutdown stalemate dragged on. Renewed US-China trade tensions only added to the gloom, weighing further on sentiment toward the buck.

In the domestic money market, Treasury yields drifted lower through most of the week before steadying a little heading into the weekend.

The Fed’s balancing act

The Fed trimmed rates by a quarter point at its September 17 meeting, citing slower hiring and growing risks to the labour market, even as inflation stays “somewhat elevated”.

Following the updated ‘dot plot’, policymakers still point to another half-point of easing before year-end, with smaller cuts likely stretching into 2026 and 2027.

Earlier this week, Chair Jerome Powell acknowledged that hiring momentum was cooling and stressed that the Fed would continue taking things “one meeting at a time”, trying to strike a balance between a weakening job market and still-sticky inflation.

The markets have heeded Powell’s warning, as traders are now placing bets on two additional rate cuts: one in October and another in December.

Futures are pricing in roughly 51 basis points of easing by year-end and about 124 basis points by the end of 2026.

Fed officials lean toward more easing as labour market softens

Federal Reserve officials struck a cautiously dovish tone this week, signalling rising concern about the labour market’s loss of momentum while maintaining a watchful stance on inflation. The overall message suggested that risks were shifting, and further policy easing was becoming more likely in the near term.

Philadelphia Fed President Anna Paulson said labour market risks appeared to be increasing, not dramatically, but noticeably, and noted that momentum seemed to be moving in the wrong direction.

Boston Fed President Susan Collins remarked that inflation risks now seemed somewhat more contained than before, while risks to the labour market looked greater. She added that another 25 basis points of easing might therefore be appropriate.

Fed Governor Stephen Miran argued that new risks had emerged in recent days, which in his view added urgency to cutting rates. He suggested that half-point moves might be preferable to bring policy closer to neutral more quickly.

Governor Christopher Waller said the data on the labour market supported another 25 basis point reduction at the next policy meeting on October 29.

Chair Jerome Powell noted that, while official employment data for September were delayed, the available evidence indicated that layoffs and hiring remained low. However, he also said that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continued to decline.

Vice Chair for Supervision Michelle Bowman reiterated that she still expects two more rate cuts before the end of the year.

Taken together, the remarks pointed to a Federal Reserve increasingly focused on the labour market’s softening rather than inflation pressures. While some policymakers were leaning toward a faster pace of easing, the overall tone suggested a preference for a gradual approach, with one cut likely in October and another by year-end.

Shutdown fatigue sets in as political divide widens

The US government shutdown has dragged into its 17th day, with no sign of a breakthrough after the Senate failed yet again to pass a funding bill, marking its tenth attempt this week. That makes it the third-longest shutdown in modern history, behind only those of 1995 and 2018–19.

Senate Majority Leader John Thune sent lawmakers home for the weekend after Thursday’s failed votes, meaning the impasse will stretch into next week. The House, meanwhile, hasn’t met since September 19 and has no plans to return until a deal is reached.

Roughly 900,000 federal workers have been furloughed, and another 700,000 are still on the job but unpaid. Courts are running out of funds, and many agencies are scaling back operations.

The deadlock shows how divided Washington is along party lines, with Republicans and Democrats pointing fingers at one another and little indication of agreement. The longer it goes on, the worse it becomes. It undermines public confidence, disrupts crucial data releases, and exacerbates the uncertainty surrounding the Fed’s already challenging policy outlook.

The tariff question: Short-term leverage, long-term risk

Of course, the trade front could not remain silent forever.

Beijing’s new export controls, particularly on rare-earth minerals and high-tech materials, have rattled Washington, with US officials calling them a calculated move to squeeze global supply chains. Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent described the measures as a “global supply-chain power grab”. In response, President Trump has threatened to slap a 100% tariff on Chinese imports, a move he admits may not be sustainable but sees as leverage.

Despite the tension, both sides are maintaining the possibility of talks. Bessent is due to speak with Chinese Vice Premier He Lifeng later on Friday to try to stabilise negotiations, and Trump still expects to meet President Xi Jinping in South Korea in the coming weeks.

In the meantime, markets are on edge, wary that another flare-up could disrupt trade and dampen investment sentiment. Even a modest breakthrough from today’s call could help calm nerves ahead of the leaders’ meeting.

Stepping back, tariffs remain a tricky balancing act. They may score quick political points, but the longer they stay in place, the more they risk driving up prices for households and slowing growth. Some in Trump’s camp seem comfortable with a weaker Dollar to help exporters, but bringing manufacturing back home is a slow and costly process, and tariffs on their own won’t make it happen.

What’s next for the US Dollar?

The ongoing US government shutdown has delayed the release of the CPI report, which is now due on Friday, October 24, a data point markets had been eagerly waiting for.

With the Fed now in its blackout period, meaning no public comments from officials, the spotlight will shift to how the shutdown and US-China trade developments unfold in the coming days.

Technical views

The US Dollar looks set to stay in consolidation mode for now.

If DXY slips below its 2025 bottom at 96.21 (September 17), that could open the door to a move toward the February 2022 valley at 95.13 (February 4) and possibly the 2022 base at 94.62 (January 14).

On the other hand, the index faces immediate resistance at the August peak at 100.26 (August 1), seconded by the weekly top at 100.54 (May 29) and the May ceiling at 101.97 (May 12).

So far, the index remains below both its 200-day and 200-week SMAs at 100.98 and 103.25, respectively, keeping the bearish outlook unchanged.

Momentum signals show some improvement. That said, the Relative Strength Index (RSI) hovers around 51, suggesting that gains are still on the cards in the near term, while the Average Directional Index (ADX) near 20 is indicative of a trend that is slowly gathering steam.

US Dollar Index (DXY) daily chart

Bottom line

The near-term outlook for the US Dollar is still hazy.

The Fed faces less political pressure, but markets continue to price in more rate cuts in a context of ongoing tariff risks, swelling government debt, renewed trade tensions, and the protracted US government shutdown. Even when the US Dollar bounces, it struggles to hold those gains.

Most analysts keep a negative view on the Greenback, but with short positions already crowded, any further decline may unfold more gradually, more of a grind than a sharp drop.

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The Pound Sterling (GBP) extends its winning streak against the US Dollar (USD) for the third trading day on Friday. The GBP/USD pair jumps to near 1.3470 during the European session as the US Dollar underperforms its peers due to trade frictions between the United States (US) and China, and accelerating Federal Reserve (Fed) dovish expectations on monetary policy for the remaining year.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades near the 10-day low around 98.10.

Trade relations between the two largest powerhouses of the world are going through a rough patch as Washington has imposed additional 100% tariffs on imports from China against Beijing’s export controls on rare earth minerals.

Meanwhile, the meeting between US President Donald Trump and Chinese leader Xi Jinping scheduled later this month in South Korea remains on track. “We are working on a meeting, President Trump will go on meeting with Xi,” US Treasury Secretary Scott Bessent said on Thursday. He added that Washington doesn’t want to “decouple with China”, but it cannot allow “bureaucrats in China to manage the supply chain, and manufacturing process for the rest of the world”.

Other leaders across the globe have also criticized China for adopting rare earths export control measures. “China’s decision on rare earths is wrong, and dangerous for world economy. I welcome a greater Group of Seven (G7) focus on where we get critical minerals from,” United Kingdom (UK) Chancellor of the Exchequer Rachel Reeves said on Thursday.

Daily digest market movers: Pound Sterling exhibits mixed performance against its currency peers

• The Pound Sterling demonstrates a mixed performance against its major currency peers on Friday, with investors seeking fresh cues on whether the Bank of England (BoE) will cut interest rates again in the remaining year.
• BoE dovish expectations accelerated this week after the release of the UK labor market data for the three months ending in August. The data signaled that the jobless rate accelerated and the wage growth slowed down. The Unemployment Rate accelerated to 4.8%, the highest level seen since the three-month period ending in March 2021.
• According to money market consensus, traders expect the BoE to cut interest rates by 46 basis points (bps) this year.
• On the contrary, BoE Monetary Policy Committee (MPC) member Catherine Mann, an outspoken hawk, has argued against lowering interest rates further. Mann didn’t support further monetary expansion, citing that UK labor market conditions are weakening only at a moderate pace. “What has transpired is that the labour market has modestly loosened, but it is not falling off the cliff,” Mann said in an event in Washington on Thursday, Reuters reported.
• On the fiscal front, UK Chancellor of the Exchequer Reeves confirmed that the government is not going to increase the wealth tax in the upcoming Autumn Budget scheduled next week. However, she clarified that there would be further tax raises and cuts in public spending.
• In the US, the speculation for more than 50 basis points (bps) reduction in interest rates by the Federal Reserve (Fed) has intensified amid growing US labor market concerns. According to the CME FedWatch tool, traders have fully priced in at least a 50-basis-points (bps) rate cut in the remaining year and see a 19.6% chance that the Fed could cut borrowing rates by 75 bps.

Technical Analysis: Pound Sterling jumps to near 1.3470

The Pound Sterling gains further to near 1.3470 against the US Dollar on Friday. The GBP/USD pair strives to extend its recovery above the 20-day Exponential Moving Average (EMA), which trades around 1.3423.

The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, which indicates a sideways trend.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the psychological level of 1.3500 will act as a key barrier.

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The Pound Sterling (GBP) gains against its major peers on Thursday after the release of the United Kingdom (UK) monthly Gross Domestic Product (GDP) and factory data for August. The Office for National Statistics (ONS) reported that the economy grew by 0.1%, as expected, at the same pace as it contracted in July.

The Industrial Production rose by 0.4% on a monthly basis, faster than estimates of 0.2%. In July, it declined by 0.4%. Year-on-year, the Industrial Production fell at a faster pace of 0.7%, compared to estimates of 0.6% and a 0.1% decline seen in July.

Meanwhile, the Manufacturing Production grew at a faster pace of 0.7% in the same month against estimates of 0.4%. In July, output in the manufacturing sector declined by 1.1%.

Signs of recovery in the manufacturing sector and a slight Gross Domestic Product (GDP) growth are expected to offer some relief to the UK government. However, the relief is expected to remain short-lived as the government prepares to unveil the Autumn Budget next month, in which it is expected to raise taxes to fund spending on day-to-day operations.

On the monetary policy front, the speculation for more interest rate cuts by the Bank of England (BoE) in the remaining year has increased amid souring job market conditions and hopes that price pressures have peaked for now.

This week, the ILO Unemployment Rate for the three-months ending August accelerated to 4.8% from 4.7%. On the inflation front, the BoE stated in its policy meeting last month that price pressures would peak around 4% in September.

Daily digest market movers: Pound Sterling gains against US Dollar

• The Pound Sterling rises to near 1.3440 against the US Dollar (USD) after the release of the UK GDP data. The strength in the GBP/USD pair is contributed by the UK data release and weakness in the US Dollar.
• At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to a fresh weekly low near 98.40 posted earlier in the day.
• The Greenback faces selling pressure from a series of headwinds, especially firm Federal Reserve (Fed) dovish bets and ongoing trade frictions between the United States (US) and China.
• Traders remain increasingly confident that the Fed will cut interest rates further this year as downside risks to the labor market have escalated. According to the CME FedWatch tool, traders see a 94.6% that the Fed will reduce interest rates by 50 basis points (bps) to 3.50%-3.75% in the remaining year.
• Meanwhile, Fed Governor Michelle Bowman has also acknowledged labor market risks and has supported two more interest rate cuts this year. “I continue to see two more cuts before the end of this year,” Bowman said on Tuesday, Reuters reported.
• On the global front, US President Donald Trump has signaled that he will persuade China to halt buying Oil from Russia. This week, trade tensions between the two nations escalated after Trump threatened to impose additional 100% tariffs on Beijing, which will come into effect in early November. However, market experts remain confident that Washington might roll back its tariff decision after a meeting between Trump and Chinese leader XI Jinping scheduled later this month in South Korea.

Technical Analysis: Pound Sterling struggles near 20-day EMA

The Pound Sterling trades calmly near 1.3420 against the US Dollar on Thursday. The GBP/USD pair struggles to extend its recovery above the 20-day Exponential Moving Average (EMA) around 1.3419.

The outlook for the Cable remains uncertain amid a Head and Shoulder chart pattern on a daily timeframe.

The 14-day Relative Strength Index (RSI) holds above 40.00. A fresh bearish momentum would emerge if the RSI falls below that level.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the psychological level of 1.3500 will act as a key barrier.

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