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The dominant theme this week is the aftermath of last week's hawkish central bank trifecta - the Fed, BoJ, and BoE all delivered decisions within three days following the ECB hike the week prior. The Fed's move proving the most consequential for FX with a USD strengthening that sent GBPUSD sub 1.3400. The US Dollar Index climbed to fresh two-month highs above the key 100.00 level, ending two consecutive weeks of declines, with the Dollar's strength underpinned both by the hawkish FOMC stance and elevated crude oil prices in the first half of last week. The Fed's first rate hike since 2023 has taken the target range to 3.75–4.00%. This is keeping the Dollar supported into the new week, with the US 10-year yield easing slightly to around 4.97% after touching 5.00% on Friday.
Geopolitics are an active market driver. Saudi Arabia's East-West pipeline was shut following apparent Houthi drone attacks, with Yanbu loadings suspended; Riyadh was working to restore around half of capacity by midweek, but Aramco suspended long-term supply commitments to Europe for next month. Oil has since pulled back, with Brent easing to around $102, down roughly 1.8%, on Middle East diplomacy hopes. The other major macro event this week is Thursday's Trump–Xi summit, with trade and AI on the agenda, which carries significant potential for volatility across risk and commodity-linked currencies. Key data this week includes flash PMIs on Wednesday and US PCE inflation on Friday, with a busy schedule of Fed and ECB speakers throughout.
GBPUSD Range last week: 1.3330 – 1.3491
Sterling came under notable pressure last week. GBP/USD fell to as low as 1.3330, multi-week lows, rapidly reversing the previous week's modest gains. Cable is trading around 1.3370 as the new week opens. The BoE decision, while expected, did little to provide lasting support, with the broader Dollar bid and geopolitical risk-off environment weighing on the pair. The Pound stumbled as the BoE fell further behind its peers in restarting its hiking cycle. The vote was 6-3, with Pill, Greene, and Mann dissenting in favour of a hike, the same hawkish minority as July, suggesting the committee's centre of gravity has not shifted materially. Sterling did manage a partial recovery on Friday, however, courtesy of an unexpected rebound in UK retail sales, sales volumes rose 0.5% month-on-month in August, published by the ONS on Friday 18th September. This beat consensus expectations of a 0.2% decline and reversed the 0.5% fall recorded in July.
The UK data calendar this week offers several potential catalysts: Public Sector Net Borrowing and CBI Industrial Trend Orders are due on Tuesday, flash S&P Global PMIs on Wednesday, and CBI Distributive Trades on Thursday, with GfK Consumer Confidence closing the week on Friday. The flash PMIs will be closely watched for any signs that UK activity is holding up against a tighter monetary backdrop. BoE's Dhingra and Bean are both scheduled to speak on Thursday, and any dovish signals could add further downward pressure on Sterling.
GBPEUR Range last week: 1.1618 – 1.1688
GBP/EUR is trading around 1.1660 (0.8570) as the week opens, virtually unchanged on the week after a volatile seven days. The pair oscillated between a 19-day high and a two-week low last week as the BoE rate decision rocked Sterling, with the cross ultimately giving back most of its intra-week gains. The rate has been anchored in a relatively tight range through much of August and into September, lingering around the 1.1700 mark or just shy of the psychologically important 0.8600 level in EUR/GBP terms. The primary structural driver for the cross remains the interest rate differential. Sterling trades where it does against the Euro largely because the BOE is holding its Bank Rate at 3.75% while the ECB's deposit facility rate is 2.25%. That differential, rather than UK economic outperformance, is doing most of the work for GBP.
The key risk this week is Wednesday's flash PMIs, released simultaneously for the UK and Eurozone. The pair could be sensitive to soft UK data pushing GBP/EUR lower, while stronger Eurozone figures would support the cross higher from the EUR side. The ECB has a busy week of speeches from Buch, Lane, Schnabel, and Vujčić, which means the Euro has its own event risks. Any hawkish shift in ECB rhetoric would tighten the rate differential and weigh on the cross.
The medium-term consensus bias is mildly bearish for GBP/EUR, with forecasters surveying 21 providers pointing to a rate around 1.1617 by end-2026, slipping further to around 1.1495 by early 2027. A sustained move above 1.2000 is not expected, with the pair trading towards the upper end of its recent range at current levels, making further significant gains increasingly difficult without a clear improvement in the UK economic outlook.
EURUSD | Range last week: 1.1587 - 1.1456
The Dollar was propelled sharply higher last week after the Federal Reserve delivered its first rate rise in three years. Expectations running into the meeting were already elevated, with investors looking for hawkish signals alongside the widely anticipated 25bp increase - and the Fed comfortably cleared that high bar. Lifting the benchmark to 3.75%-4.00%, Chair Warsh, previously reluctant to commit to a path, underlined the need to do more on inflation and strongly signalled another hike before year-end. The Greenback surrendered part of its advance to late profit-taking but still closed the week considerably firmer.
The move has recalibrated expectations for the months ahead. With the Fed's own projections implying a further quarter-point rise and only two policymakers seeing no more action this year, markets now price another hike by end-2026 and two more by mid-2027. Cheaper oil took some steam out of the post-decision rally, though it looks unlikely to loosen the Dollar's grip decisively while energy risks linger.
The week ahead is quieter after the drama of the decision. Wednesday's flash PMIs are the first read on how the economy is coping with the recent oil spike, with any resilience feeding the case for more tightening. Durable goods orders on Friday are the other focus, where an expected contraction could weigh on the Dollar late in the week. Two, five and seven-year Treasury auctions punctuate the schedule.
Important Data Releases
Monday: CAD BoC Governor Macklem speech (4pm), EU ECB President Lagarde speech (4pm)
Tuesday: EU ECB President Lagarde speech (1pm), US ADP Employment Change 4-week average (1:15pm), EU Consumer Confidence Flash (3pm)
Wednesday: French PMIs (8:15am), German PMIs (8:30am), EU PMIs (9am), UK PMIs (9:30am), US PMIs (2:45pm)
Thursday: AUD Employment & Unemployment Rate (2:30am), CHF SNB Interest Rate Decision (8:30am), German IFO Business Climate (9am), CAD Retail Sales (1:30pm), US Initial Jobless Claims (1:30pm)
Friday: UK GfK Consumer Confidence (12:01am), German GfK Consumer Confidence (7am), Spanish GDP Q2 (8am), US Durable Goods Orders (1:30pm), US Michigan Consumer Sentiment Final (3pm)
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