04.11.202410:07 Forex Analysis & Reviews: What to Expect from Central Banks This Week

The U.S. dollar is losing ground against the euro and the pound, and there are objective reasons for this. Aside from Donald Trump's apparent loss of momentum in the presidential race, the Federal Reserve's policy is an important factor influencing the weakening of the U.S. dollar.

The Federal Reserve and many central banks are expected to once again lower interest rates this week. This will happen immediately after the U.S. presidential elections, which remains uncertain, adding further pressure on the dollar.

Central banks, responsible for over a third of the global economy, will set borrowing costs this week, clinging to any solid data they can gather about the likely direction of U.S. policy for the next four years.

As Vice President Kamala Harris and former President Donald Trump run neck and neck ahead of the November 5 election, pressure on policymakers from Washington to London is growing. Recent public opinion polls indicate that Donald Trump has lost his lead, and his chances of winning the presidential election are significantly lower than a week earlier.

Beyond the elections, U.S. policymakers have already expressed a desire to continue with a more gradual pace of rate cuts following the half-point reduction in September.

Economists generally expect a quarter-point cut this Thursday, followed by another in December. This course of action is understandable, especially after Friday's data showed the weakest level of job creation since 2020. According to the data, nonfarm payrolls increased by just 12,000 last month, while hiring in the previous two months was weaker than initially estimated, indicating that the labor market continues to cool. Unemployment remained at 4.1%, while hourly wages rose.

Although Federal Reserve officials try to distance themselves from politics, they began a rate-cutting cycle before the election, whose outcome may depend on how voters feel about the economy. While Fed Chairman Jerome Powell is likely to emphasize that current conditions require a less restrictive policy, he and his colleagues still risk criticism from the new administration.

Central banks in other countries are also facing various risks—from slowing economic growth to persistent inflation—without even considering the potential blow to global trade that Trump's victory and his threat to impose tariffs would entail.

The Reserve Bank of Australia is expected to keep borrowing costs unchanged on Tuesday. However, rates are likely to be cut in the UK, Sweden, the Czech Republic, and other countries.

All of this will heavily impact the currency market, and the outlook for the U.S. dollar remains bleak.

As for the current technical picture of EUR/USD, buyers need to consider taking the level of 1.0915. From there, reaching 1.0935 is possible, but this will be challenging without support from major players. The furthest target will be the 1.0955 high. If the trading instrument declines, significant buyer action is expected around 1.0860. If there is no support, waiting for the 1.0830 low to be tested or opening long positions from 1.0810 would be advisable.

As for the current technical picture of GBP/USD, pound buyers need to overcome the nearest resistance at 1.2995. Only this will enable a target of 1.3040, above which breaking through will be difficult. The furthest target will be the 1.3070 area, after which a sharper move to 1.3100 could be discussed. If the pair falls, bears will attempt to regain control at 1.2690. If successful, breaking this range will deliver a significant blow to the bulls' positions and push GBP/USD down to a 1.2925 low, with the potential for reaching 1.2885.