Sterling Softens Ahead of Fed and BoE Policy Decisions

GBP

The Pound remains under pressure as markets continue to expect the Bank of England to start cutting interest rates in the coming months. GBP/USD is holding just above $1.33 but has lost momentum, reflecting softer UK data and caution ahead of the Autumn Budget.

Markets now see around a 40% chance of a rate cut in November, with around 0.65% of easing expected by year-end. Signs of a cooling labour market and steady inflation give the Bank of England room to lower rates, while uncertainty around the UK’s fiscal plans adds to downside risks for Sterling.

For now, the Pound’s direction is likely to remain dictated by the policy gap between a BoE leaning toward cuts and other central banks taking a slower approach.

EUR

The Euro has started the week broadly steady, with GBP/EUR trading near €1.1450 after easing from last week’s highs. The single currency remains supported by expectations that the European Central Bank has likely finished its rate-cutting cycle, contrasting with the UK’s outlook.

Political tensions in France and Moody’s downgrade of its credit outlook have capped gains, but the Euro is still underpinned by confidence that the ECB will keep policy unchanged for now.

Markets will be watching German business sentiment data and the ECB’s inflation expectations survey ahead of Thursday’s meeting, where no policy change is expected. The December meeting should offer clearer guidance through updated inflation forecasts.

USD

The Dollar trades cautiously ahead of this week’s Federal Reserve decision, with markets almost fully pricing in a 25-basis-point rate cut to 3.75%–4.00%, which would be the second in a row. Softer US inflation data has strengthened the case for easing, with September’s CPI showing modest monthly rises of 0.3% for headline and 0.2% for core inflation.

Improving risk sentiment has also helped stabilise markets, supported by growing optimism over a US–China trade deal. Both governments have signalled progress, with President Trump and Treasury Secretary Bessent suggesting additional tariffs and export controls could be delayed.

The Dollar Index (DXY) remains near 99, but a stronger set of German Ifo numbers could limit further gains, especially if the Fed adopts a dovish tone later in the week.

Why this matters
This week’s data releases could spark sharp moves in currency markets. For businesses and individuals with upcoming FX needs, even small shifts can have a meaningful impact on costs and margins. Our team can help you manage the risks and position yourself to benefit from opportunities.

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