Synopsis:

ANZ expects USD strength to moderate in the short term, as extended long positioning unwinds and year-end seasonality sets in. Meanwhile, the GBP could face challenges with key data releases ahead, especially if growth and employment figures show weakness, though recent BoE caution has lent the pound some support.

Key Points:

• USD Outlook:

  • Post-election USD gains are softening as long positions ease and seasonal risk-on sentiment emerges.
  • Trump’s promises on spending and tariffs support a USD-positive narrative, but global economic softness in the EU and China keeps the DXY firm.
  • While improved PMIs in China and the EU hint at recovery, sustained global growth could shift the USD trajectory downward by 2025.
  • Near-term CPI data will be crucial, with a higher reading potentially supporting USD strength, while weaker data may be overlooked for now.

• GBP Outlook:

  • GBP gained modest support from a cautious BoE 25bps cut and the USD’s pullback.
  • The BoE’s upward revisions for growth and inflation in 2025-2026 reflect fiscal impacts, with Governor Bailey signaling a measured easing approach.
  • Upcoming labor and growth data, including wage growth and Q3 GDP, will be closely watched. Weak readings could pressure GBP on crosses, especially with year-end trends favoring risk-sensitive currencies like AUD and NZD.

Conclusion:

ANZ projects USD to soften slightly in the near term, supported by seasonal factors and easing long positions, while GBP could face downside if growth and employment data disappoint. Stronger-than-expected US CPI may add marginal USD support, but softer UK data could weigh on GBP amid broader risk-on currency gains.