)
Last week was defined by a sharp US inflation surprise that failed to hold the Dollar up. The Dollar hit a fresh year-to-date high after the September CPI report but quickly surrendered the gains, ending a four-week winning streak which saw us dip into the $1.3100s. Headline CPI rose 3.7% year on year (from 3.4% in August), with gasoline accounting for half of the monthly increase. Core inflation of 2.6% was above the consensus estimate, and the 10-year Treasury Yield jumped about 9bp to 5.304% on the release. The reaction reversed quickly, with the 10-year ending the week near 5.09%, down from about 5.24%, and the Dollar index about 0.5% lower. More specifically from a currency perspective GBP/USD rose back above $1.3300. The driver was a Fed that refused to lean hawkish. Chair Warsh signalled no urgency to tighten again, and with the midterms close, a back-to-back hike looked unlikely. Fed communication is now in its blackout period ahead of the 27-28 October decision, so data and yields will lead. The AI-linked selloff also spread into parts of the credit market. The S&P 500 fell 1.95% and the Nasdaq 4.48%, with chip stocks down 11.41%, and the VIX rose from 14.84 to 19.99. The Dow rose 0.67% as money rotated into defensives. The US labour market remained firm: initial jobless claims were 199,000, just below forecast.
The week’s main headline came after the market close. Nationwide cost-of-living demonstrations on Saturday 17th October in France drew about 550,000 people according to authorities (organisers said 800,000), with violent groups clashing with police and looting shops. The movement has since widened to unions, former “yellow vest” activists and others, and arrives at a bad moment for the public finances. France’s 2026 deficit is running at 5.4% of GDP against a 2027 target of 5.0%, public debt is 119% of GDP, and a pivotal National Assembly vote on the 2027 budget is approaching. Banque de France Governor Moulin said the strain in French bonds is serious but does not meet the conditions for ECB support.
Markets reacted modestly at the start of this week. EUR/USD is calmer trading in the low $1.1200s, however the jump in GBP/EUR is material as we approach $1.1900. The next European Central Bank meeting is on the 29th October, positioning is expected to stay light and headline risk out of France high.
GBP/USD | Range last week: 1.3180 – 1.3303
Sterling outperformed last week, bouncing back from US inflation figures whilst continuing to press higher in GBPEUR. GBP/USD rose about 0.66% on the week to $1.3329, its highest since the 23rd September, snapping a four-week losing streak. Daily data show a low of $1.3138 on Wednesday, the day of the US CPI shock, so the move was a recovery from that low.
Sterling was set for a third weekly gain against the Euro, with EUR/GBP at £0.8441 (€1.1847) after touching £0.8428 (€1.1865) on Wednesday, its lowest since June 2025. Stronger-than-expected UK GDP data reinforced expectations of a Bank of England hike in November. August saw minimal growth at 0.1% down from 0.4% in July, but against the expectation of a contraction (below 0). Markets expect a 25bp increase at the 5th November meeting, according to LSEG data. Commerzbank noted that economic resilience gives the BoE room to hike without further pressure on a weakening economy, and eases pressure on the Chancellor over the deficit. The key risk to sterling is gilt yields: investors worry that rising yields could hurt growth and public finances.
GBP/EUR | Range last week: 1.1792 – 1.1861
The Euro hit a 17-month low early in the week before recovering. EUR/USD fell to its lowest since May 2025 as US core inflation beat forecasts. It then bounced from the channel floor near $1.1110 to around $1.1239 on Friday. The main idiosyncratic driver remains France. Nationwide cost-of-living demonstrations on Saturday 17th October in France drew about 550,000 people according to authorities (organisers said 800,000), with violent groups clashing with police and looting shop. At least 1,800 people were arrested and more than 500 police, gendarmes and firefighters were injured. President Macron condemned the “shocking” violence in a televised address on Sunday. The French-German 10-year spread briefly widened above 150bp on 2nd October, the widest since the 2011-2012 crisis, and was still around 135bp.
Eurozone inflation is at 3.8%, and the ECB raised its deposit rate to 2.50% in September and meets again on 29 October. Markets price almost no chance of a hike at that meeting, but almost two hikes by mid-2027. Flash October PMIs next Friday, ahead of the Fed and ECB decisions, are the key event risk. The recovery is best read as a Dollar-led correction, not a change in the Euro’s fundamentals.
EUR/USD | Range last week: 1.1115 - 1.1268
The Dollar saw a volatile week, striking a fresh year-to-date high against EUR before collapsing just as quickly. Trading was subdued at first as risk appetite steadied and investors held back ahead of the US CPI release. The Greenback then surged after inflation came in hotter than forecast, accelerating to 3.7% in September and stoking fears that price pressures were becoming entrenched - in the hours that followed, the odds of an October hike spiked as high as 50%. The rally proved fleeting. Mounting doubts over the sustainability of the AI spending that has underpinned much of US growth knocked the currency back, and the selloff deepened after Fed Chair Warsh declined to commit to a set policy path, dragging October hike bets back below 15%.
That leaves a back-to-back move this month looking unlikely. Markets now price only around a 15% chance of a rise on 28 October, with a quarter-point hike fully discounted for December and three increases anticipated over the coming year. Treasury yields have eased from multi-year highs amid the AI-debt jitters, though lingering energy-price concerns could yet drive them higher.
US data is thin this week, with Friday’s flash PMIs the main release, alongside jobless claims on Thursday and the final Michigan sentiment reading. Beyond the calendar, shifting risk sentiment and geopolitical developments - not least around Russia sanctions and energy supply - remain a wildcard for the safe-haven Dollar.
Important Data Releases
Monday: CAD CPI (1:30pm), CAD BoC Business Outlook Survey (3:30pm)
Tuesday: China PBoC Interest Rate Decision (2:15am), German PPI (7am), UK Employment & Unemployment Rate (7am), German ZEW Economic Sentiment (10am), EU ZEW Economic Sentiment (10am), US Building Permits & Housing Starts (1:30pm)
Wednesday: JPY Trade Balance (12:50am), UK CPI, PPI & RPI (7am), EU ECB President Lagarde speech (5:30pm), NZD CPI Q3 (10:45pm)
Thursday: US Initial Jobless Claims (1:30pm), EU Consumer Confidence Flash (3pm), AUD Flash PMIs (11pm)
Friday: UK GfK Consumer Confidence (12:01am), JPY National CPI (12:30am), UK Retail Sales (7am), French PMIs (8:15am), German PMIs (8:30am), EU PMIs (9am), UK PMIs (9:30am), CAD Retail Sales (1:30pm), US PMIs (2:45pm), US Michigan Consumer Sentiment (3pm)
Subscribe to our weekly market updates for expert insights into major currency movements.
At VFX, our team of experienced brokers supports businesses in navigating volatile currency markets, ensuring that our clients can move, manage and protect money across borders without friction.
If your business is looking for alternative banking solutions or ways to mitigate FX risk, contact our team today or call +44 (0) 20 7959 6900.