EUR/USD & GBP/USD Forecast: Key Trades to Monitor This Week

EUR/USD Anticipates ECB Rate Decision

• ECB is expected to reduce rates by 25 basis points
• A focus on communication and updated forecasts is anticipated
• Upcoming US PPI and jobless claims data will be closely watched
• EUR/USD is trading within a range of 1.05 to 1.06

Following four consecutive days of losses, EUR/USD finds stability above the 1.05 mark, bolstered by USD weakness as traders prepare for the upcoming ECB rate decision.

We anticipate that the ECB will implement a 25 basis-point reduction, lowering rates to 3%. However, the possibility of a more aggressive 50-basis-point cut remains. Market participants will likely scrutinize the accompanying commentary, particularly the revised staff projections which could indicate an earlier-than-expected achievement of the inflation target, allowing for a dovish rate cut.

Add to this the recently reported composite PMI dropping to its lowest in ten months and ongoing political uncertainties in Germany and France, the ECB is likely to consider adopting a more dovish policy approach.

Current market expectations suggest a total of 150 basis points in cuts between now and the end of next year. If Christine Lagarde adopts a dovish tone, it could escalate rate-cut speculation, further pressuring the euro.

Meanwhile, the USD is experiencing a slight pullback, operating within a narrow trading range, following the recently released US CPI data. This data supports expectations of a Fed rate cut next week, coinciding with today's PPI data release.

Preliminary estimates forecast the PPI to increase to 2.6% year-over-year, up from 2.4%. This comes on the heels of a CPI increase to 2.7% versus 2.6% previously.

Indications of stalled disinflation continue to sustain the USD, while a December rate cut appears to be a certainty, albeit further rate reductions may proceed at a cautious pace in the coming year.

EUR/USD Technical Outlook

EUR/USD has declined from a late September high of 1.12 to a low of 1.0330 by November 2025. The current price is stabilizing between 1.05 and 1.06, once again probing the lower range of this consolidation.

For sellers, a decisive break below 1.05 is necessary to extend the bearish trend towards 1.04 and 1.0330.

If 1.05 holds, buyers may target a rise to 1.06. Should this level be breached, attention will shift towards the 1.07 mark.

 

GBP/USD Moves Within Range Ahead of US Data Releases

• US CPI increased to 2.7% year-over-year from 2.6%
• US PPI is projected to rise to 3.2%, up from 3.1%
• GBP/USD trades around the 1.2750 level, slightly below the 200 SMA

GBP/USD remains confined in a narrow trading range near the 1.2750 mark, particularly following the release of US CPI data and ahead of further economic indicators from the US. With a quiet economic calendar for the UK, the USD is expected to dominate market movements.

The recent US CPI figure showed a rise to 2.2% from 2.6%, aligning with forecasts, and the core CPI holds steady at 3.3%. Despite elevated inflation, this data appears to validate the possibility of a Fed rate cut in December.

The market is pricing a 95% likelihood of a 25-basis-point cut at the upcoming FOMC meeting, an increase from 85% prior to the latest data.

Today’s focus will be on the US PPI release, projected to escalate to 3.2% from the previous 3.1%. Additionally, jobless claims data will be monitored for signs of labor market resilience, with forecasts estimating initial claims to drop to 220K from 224K.

The British pound is being supported by expectations for the Bank of England to adopt a slower rate-cutting strategy compared to its international counterparts. The Bank of England is anticipated to keep rates steady in next week's meeting, with market forecasts suggesting only 60 basis points in cuts by the end of the year.

Following the New Labour government's budget presentation, which is perceived as inflationary, the BoE has shifted to a more hawkish stance.

With no high-impact UK economic data today, attention will pivot to GDP figures expected tomorrow.

GBP/USD Technical Outlook

GBP/USD has continued its recovery from a low of 1.25, breaking out of a protracted descending channel, yet the rally has stalled just below the 200 SMA.

Buyers will seek to push the price above the 200 SMA at 1.2825, targeting 1.2875 as the next resistance level along with the 50 SMA. A successful move above this level would place 1.29 and subsequently the key 1.30 level within reach.

However, failing to reclaim the 200 SMA could lead sellers to retest support at the 1.27 weekly low, followed by 1.2630, the December low, and 1.26. A breakdown below these levels would bring the pivotal 1.25 level into focus.