Euro and sterling strengthen as dollar weakens ahead of Bank of England decision

The euro and British pound advanced against the US dollar on Wednesday, November 4, as Democratic victories in the US congressional elections weighed on the greenback, while rising European inflation and expectations of a Bank of England interest rate increase supported both currencies.

Sterling reached its strongest level in seven weeks earlier in the session, although gains moderated as investors prepared for Thursday's monetary policy announcement.

Price overview

EUR/USD last traded up 0.34% to $1.1229, while GBP/USD gained 0.45% to $1.3475.

EUR/GBP slipped 0.10% to £0.8336, reflecting sterling's relative strength.

Dollar weakness supports European currencies

Democrats secured control of both chambers of Congress, prompting investors to reconsider US fiscal policy and the prospects for further government spending.

The dollar's retreat provided support for European currencies, although political uncertainty and Friday's US employment report kept trading cautious.

Eurozone inflation strengthens ECB rate expectations

Eurozone annual inflation accelerated to 4% in October from 3.8% in September, reaching its highest level in three years.

The figures strengthened expectations of another European Central Bank interest rate increase, despite signs of slowing economic activity.

The eurozone composite purchasing managers' index fell to 51.7 in October from 53.1, indicating its weakest expansion in four months.

Sterling awaits Bank of England decision

The Bank of England is widely expected to raise its benchmark interest rate by 25 basis points on Thursday, responding to persistent inflation pressures linked partly to higher energy costs.

However, investors will focus on whether policymakers signal further increases in 2027, with some analysts warning that expectations for aggressive tightening may already be reflected in sterling's valuation.

Market outlook

EUR/USD faces resistance around $1.1273, with support near $1.1190.

GBP/USD could retest $1.3503, while support stands around $1.3407.

Thursday's Bank of England decision and Friday's US employment figures will help determine whether the European currencies can sustain their recovery.