The EURUSD pair is struggling to maintain momentum above the key short-term support level of 1.0850. After a modest recovery on Friday, the pair faces renewed selling pressure, with the possibility of touching key medium-term support level near 1.0780:

The primary catalyst for the euro's weakness is the growing expectation that the ECB will continue to ease monetary policy. With the Eurozone grappling with sluggish economic growth and inflation dipping below the ECB's 2% target, market participants are increasingly pricing in the likelihood of another rate cut in December.The dovish sentiment is reinforced by the ECB's latest Survey of Professional Forecasters, which revised the 2024 inflation projection downward to 1.9% from the previous estimate of 2%.

Contrasting the ECB's dovish stance, the US dollar remains firm, bolstered by expectations of a measured approach to monetary easing by the Fed. Interest rate derivatives indicate that markets anticipate a cumulative 50 bps reduction in interest rates by the end of the year, suggesting 25 bps cuts at both the November and December meetings.

Recent US economic data for September have showcased resilience, diminishing the urgency for aggressive rate cuts. Investors are closely monitoring upcoming data releases, including the preliminary S&P Global PMI for October due this Thursday, to gauge the economy's trajectory.

Furthermore, several Fed officials are slated to speak this week, potentially providing additional insights into the central bank's policy direction. Notably, Atlanta Fed President Raphael Bostic recently advocated for caution, suggesting the Fed should refrain from cutting rates too swiftly. He envisions only one rate cut in the remaining two meetings this year and anticipates the federal funds rate settling between 3% and 3.5% by the end of 2025.

Adding another layer to the dollar's strength is the approaching US presidential election on November 5. Betting markets have begun to slightly favor a potential victory for former President Trump. Historically, political uncertainty or shifts towards candidates perceived as pro-business can influence currency valuations. A Trump win could be associated with expectations of fiscal stimulus or deregulation, factors that might further bolster the dollar.

The British pound extends consolidation near the key round support level of 1.30 against the US dollar in today's session. Previously weighed down by expectations of aggressive interest rate cuts from the BoE amid easing inflation, the pound's outlook is now subject to reevaluation following stronger-than-expected UK Retail Sales data for September. Short-term upside looks like a more likely outcome, considering that the main bearish catalysts for the Pound have been factored in and the GBPUSD price managed to sustain above 1.30 support level:

Retail Sales, a critical indicator of consumer spending and economic health, unexpectedly increased by 0.3% month-over-month, defying economists' predictions of a contraction. This suggests that UK consumers remain resilient despite broader economic challenges, potentially reducing the urgency for the BoE to implement immediate rate cuts.

Prior to this data, markets had been pricing in rate reductions at both of the BoE's remaining policy meetings this year. The positive surprise in consumer spending may prompt a reassessment of these expectations. However, it is essential to consider that one data point does not constitute a trend. Investors should monitor subsequent economic indicators to determine if this momentum is sustainable.