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Sterling had another rough week, falling to a 12-week low against the Euro and ending near €1.1615 (down around 0.4%), while GBP/USD also slipped for a second straight week, briefly touching multi-week lows near 1.3208 and remains in this duldrums as the week begins. The Pound started last week on a weaker footing after UK consumer confidence dropped to a three-year low, then came under further pressure as figures showed a sharp rise in UK government borrowing in August, with services PMI adding to the gloom by falling more sharply than forecast, down to 51.7 in September from 52.5 in August, alongside further evidence of softer consumer spending. The Euro, by contrast, had a choppier but ultimately more resilient week: early jitters from Germany's regional elections gave way to support from stronger-than-expected eurozone manufacturing and services PMI prints and an improved German IFO business sentiment reading, though EUR/USD still ended the week with modest losses, breaking into the 1.1300s, as the Dollar built on the prior week's gains. Underlying both currencies all week was the widening focus on central bank policy paths: the ECB raised its deposit rate to 2.50% on 10th September, while the Bank of England held Bank Rate at 3.75% on 17th September.
The UK calendar is comparatively light this week, the main event lands Wednesday: the UK's final second-quarter GDP figures (7am release), which are expected to confirm that the economy lost some momentum in Q2 while still maintaining a relatively solid pace of growth, alongside the UK Current Account and quarterly Business Investment data - a downward or upward revision to GDP could see Sterling come under further pressure or strengthen, respectively. Chancellor Healey's Labour conference speech this week, and the fact he's clearing his diary to finalise the 28th October Budget, mean fiscal policy risk is moving back up the sterling agenda a month earlier than markets had been pricing in. Between Wednesday's final Q2 GDP print and Healey's conference remarks, Sterling has two distinct catalysts this week rather and with comparatively little else on the UK calendar to dilute their impact, both are likely to be felt fully rather than absorbed quietly.
GBPUSD Range last week: 1.3208 – 1.3399
Sterling is in a more precarious spot. A run of soft UK data - three-year-low consumer confidence, a bigger-than-expected jump in government borrowing, and a services PMI that missed forecasts by a wide margin, have done real technical damage: GBP/EUR fell to a 12-week low last week, and while spot is holding just above its rising 50-day moving average, momentum still favours further downside rather than a rebound. The BoE's decision to hold rates at 3.75% earlier this month was a split one: a 6–3 vote, with three MPC members (Greene, Mann and Pill) pushing for an immediate rise to 4%. That dissent keeps 5th November very much a live meeting, especially with UK CPI at 3.1% in August and Bank staff projecting it could reach slightly above 4% in early 2027. Layered on top of the rates story is a fiscal one: Chancellor Healey's Labour conference speech this week, and the fact he's clearing his diary to finalise the 28th October Budget, mean fiscal policy risk is moving back up the sterling agenda a month earlier than markets had been pricing in. Between Wednesday's final Q2 GDP print and Healey's conference remarks, Sterling has two distinct catalysts this week rather and with comparatively little else on the UK calendar to dilute their impact, both are likely to be felt fully rather than absorbed quietly.
GBPEUR Range last week: 1.1609 – 1.1666
The Euro's story right now is really a story about the widening policy gap with the UK narrowing again, and about whether eurozone inflation is troublesome enough to justify the ECB going further. Having already moved to raise its deposit rate to 2.50% on 10th September, the ECB is in a position where Friday's flash CPI, if it does show headline inflation accelerating to 3.5% as forecast, would make a strong case for continued tightening at the next meeting on 29th October. That would matter a great deal for GBP/EUR, since the rate gap versus the UK has already narrowed from 150 to 125 basis points and further ECB action while the BoE sits on its hands would compress it further, pulling GBP/EUR toward the lower end of its 1.1400–1.1800 forecast range.
In the meantime, sentiment has been buoyed by better-than-expected PMI and IFO readings out of Germany, suggesting the currency bloc's largest economy may be stabilising after a rough patch, though political risk hasn't gone away entirely, with Germany's recent regional election results having put Chancellor pressure back in the headlines, and France's public finances remaining a slow-burning concern for ratings agencies. Net effect: the Euro heads into this week with modestly improving underlying fundamentals but its near-term direction hinges almost entirely on Friday's inflation print.
EURUSD | Range last week: 1.1360 - 1.1495
The Dollar built on its recent strength last week, powering higher as investors bet the Fed will tighten more aggressively than previously assumed. Trading was steady at first, with softer oil prices and tentative signs of progress in US-Iran diplomacy easing the geopolitical anxiety that had underpinned the safe-haven Greenback. Sentiment soon turned decisively bullish, however, as a run of upbeat US data reset rate expectations. September's flash PMIs were the standout, the composite index leaping to 58.4 - its highest since July 2021 - and, alongside firmer employment figures, lifting the odds of a 25bp October hike to around 70% from 50% earlier in the week.
That repricing has left the market leaning firmly hawkish. With the Fed having already signalled the potential for another move - and only a small minority of policymakers now expecting it to stand pat - the debate has shifted from whether it hikes again to how quickly. Treasury yields underline the mood, holding near multi-year highs around 5.2%.
Friday's non-farm payrolls report headlines the week and could drive the Dollar to fresh highs if hiring stays strong enough to cement expectations of another hike. Ahead of it, JOLTS openings on Tuesday, ADP on Wednesday and jobless claims on Thursday offer earlier reads on the labour market, while PCE inflation - the Fed's preferred gauge - and the final Q2 GDP estimate also land on Wednesday.
Important Data Releases
Monday: UK BoE Ramsden speech (11am)
Tuesday: AUD RBA Interest Rate Decision (5:30am), EU Economic Sentiment & Consumer Confidence (10am), CAD GDP (1:30pm), US Consumer Confidence (3pm), US JOLTS Job Openings (3pm)
Wednesday: German Retail Sales (7am), UK GDP Q2 (7am), French CPI Flash (7:45am), German Unemployment (8:55am), Italian CPI Flash (10am), German CPI Flash (1pm), US ADP Employment Change (1:15pm), US Core PCE Price Index (1:30pm), US GDP Q2 (1:30pm), US Chicago PMI (2:45pm)
Thursday: JPY Tankan Large Manufacturing Index (12:50am), AUD Trade Balance (1:30am), CHF CPI (7:30am), German Manufacturing PMI Final (8:55am), US Initial Jobless Claims (1:30pm), US ISM Manufacturing PMI (3pm)
Friday: JPY Tokyo CPI (12:30am), EU HICP Flash (10am), US Nonfarm Payrolls (1:30pm), US Average Hourly Earnings (1:30pm), US Unemployment Rate (1:30pm), US Factory Orders (3pm)
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