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Last week was Dollar-dominant, with the Greenback extending its recent run of strength against both the Euro and Sterling, though the two European currencies diverged in how they handled the pressure. Specifically the Euro has crumbled against the Pound rising above €1.1800, a 16 month high. The core driver remains the US rates story: the yield on 10-year US Treasuries pushed up to around 5.34%, a 24-year high, as persistent inflation concerns kept the market pricing meaningfully elevated US rates for longer. That yield backdrop, combined with broad risk-off flows out of Europe, has been enough to keep the Dollar bid even as the data itself was mixed. Wednesday's ISM manufacturing PMI came in at 54.5, versus a 55.0 forecast - a soft miss that barely registered, underlining just how little the market is currently trading on incoming data versus the broader yield and positioning story.
Friday's Non-farm Payrolls release was the week's focal point. Going into it, a looming US government shutdown had been a source of uncertainty for whether the data would even be published on schedule, but that risk was resolved well before the deadline - Congress passed a continuing resolution that the President signed into law on 2nd September, extending funding to 11th December and avoiding any lapse. That removed one layer of uncertainty from the week, leaving the market free to focus on the Fed path itself, where comments from Fed Vice Chair Jefferson that more time may be needed to assess whether further rate hikes are necessary saw the market-implied probability of an October hike fall sharply, from 68.6% to 26.0%, per CME FedWatch, notable given the Fed's current cycle has been a hiking one rather than the cutting cycle seen in prior years.
In Europe, the Euro bore the brunt of the Dollar's strength. EUR/USD fell for a fourth consecutive week, at one point trading as low as $1.1215, a level not seen since May 2025, this has now fallen below $1.1200 as the move continues. Sterling, by contrast, held up comparatively well against the Dollar, cushioned by its own rate differential story and a less acute version of the Eurozone's problems, though it has its own, very live, domestic political and fiscal overhang to contend with.
GBP/USD | Range last week: $1.3180 – $ 1.3303
Sterling had a mixed week, caught between two competing forces: Dollar strength driven by the NFP beat and Fed hike expectations on one side, and increasingly hawkish domestic fundamentals on the other.
GBPUSD held graphical support at 1.3506 through much of the week, the level where August's advance began, before finding a late-week bid on the back of the GDP surprise.
UK GDP grew 0.4% month-on-month in July, against a market expectation for a contraction of 0.1%, which raises the odds of a Bank of England rate rise this month. The inflation picture added further pressure on the MPC.
UK CPI rose to 2.9% in the twelve months to July, up from 2.6% in June, with core CPI unchanged at 2.6% and services inflation easing to 3.4%. The increase came mainly from the Ofgem energy price cap rise.
Crucially, Sterling's strength against the Euro is not a UK growth story; it is a rate-differential story, and rate differentials can close quickly. GBPEUR has risen past the mid-1.1600s, where it lulled for much of last week.
A significant risk to watch heading into the BoE decision is the gilt market. UK ten-year gilt yields reached a 19-year high near 5.4% on Thursday 10th September, and rising borrowing costs are the main risk to Sterling's rate-driven support.
With the MPC vote at 6-3 in July, three members already voting for 4%, and August CPI due on 16th September, the day before the BoE decision, GBP volatility is likely to be elevated.
GBP/EUR | Range last week: €1.1621 – €1.1751
The Euro remains the weakest major currency in the recent run, driven by a genuinely stagflationary mix rather than a single catalyst. Rising energy and fuel prices are adding pressure to the Eurozone industrial sector at the same time as core inflation edged up to 2.5% from 2.4% - in line with forecasts, but still enough to keep the ECB boxed into a more restrictive stance than the growth backdrop would otherwise justify. On top of that, the ongoing debt crisis in France continues to act as a source of vulnerability for European assets more broadly, weighing on sentiment toward the single currency even where the data itself isn't uniformly bad. EUR/USD closed the week at $1.1252, up a marginal 0.09% on the session but still down over 3% on the month, and the broader trend remains firmly to the downside barring a clearer turn in the US yield story. The biggest story has already begun this week with GBPEUR breaking above €1.1800 moving the pair into a 16 month high.
EUR/USD | Range last week: $1.1218 – $1.1390
The Dollar's strength last week was a function of yields and relative positioning rather than a single piece of US data. With 10-year Treasury yields at 24-year highs and Europe facing its own fiscal and political headwinds, the Dollar has had little competition for safe-haven and carry-driven flows. That said, the move looked fragile by Friday, the soft ISM print and Fed Vice Chair Jefferson's comments both chipped away at the "higher for longer" narrative, and the sharp drop in implied October hike odds (68.6% to 26.0%) suggests the market is treating more hikes as far from a done deal. With the shutdown risk now resolved and funding secure to 11th December, the data calendar should resume its normal cadence into the next FOMC meeting on 27th – 28th October - itself now sitting right alongside the UK's own Budget and BoE decision, setting up a genuinely event-heavy end to the month across all three currencies. EURUSD has already broken the previous weeks trading ranges by falling below $1.1200 as downward pressure in the pair continues.
Important Data Releases
Monday: German Services PMI Final (8:55am), EU Sentix Investor Confidence (9:30am), EU PPI (10am), US ISM Services PMI (3pm)
Tuesday: German Factory Orders (7am), EU Retail Sales (10am), US ADP Employment Change 4-week average (1:15pm), CAD Ivey PMI (3pm)
Wednesday: JPY Labor Cash Earnings (12:30am), German Industrial Production (7am), US FOMC Minutes (7pm)
Thursday: German Trade Balance (7am), EU ECB Monetary Policy Meeting Accounts (12:30pm), US Initial Jobless Claims (1:30pm)
Friday: CAD Employment Change & Unemployment Rate (1:30pm), US Michigan Consumer Sentiment (3pm)
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