Sterling reached its strongest level against the euro in 16 months last week, a move driven more by the euro’s problems than by any UK strength. Against the dollar, the pound was little changed after three weeks of declines.
With French bond stress still weighing on the euro, markets now turn to this week’s US inflation data and a speech from Fed Chair Kevin Warsh, alongside UK growth figures and a run of Bank of England speakers.
Sterling’s 16-month high against the euro owes more to Paris than London
The euro lost ground through last week as concern over French public finances kept the gap between French and German borrowing costs close to its widest since 2012, with the euro briefly touching its weakest level against the dollar since May 2025. Sterling’s gains against the euro were helped by market pricing of close to a 90% chance of a Bank of England rate rise on 5 November. The account of the ECB’s September meeting added little support for the euro: the hike was unanimous, but policymakers stressed keeping their options open and declined to signal further moves, even with inflation at 3.8%. Some analysts note the euro now looks oversold, which could argue for a pause in its decline, while the French debt picture remains the main swing factor.
Fed minutes point to another hike, but weak jobs data complicate the timing
The minutes of the Fed’s September meeting showed every participant backed the quarter-point hike to 3.75% to 4.00%, with most judging that another increase would likely be appropriate by year end. Policymakers also stressed they approached each meeting with an open mind, and two senior officials have since said they may wait for more data. That matters after September payrolls rose by just 29,000, which has made an October move look unlikely, with December seen by some analysts as the more probable timing. A services price gauge from the ISM survey rose again in September, a reminder that US price pressures remain elevated, so Wednesday’s inflation report could carry extra weight for the dollar.
UK growth data and Bank of England voices test November rate expectations
Thursday brings the UK’s August GDP figures, after growth of 0.4% in July. Several Bank of England policymakers speak this week, and the split matters: Catherine Mann, Megan Greene and Huw Pill voted for a rise to 4.00% in September, while Sarah Breeden and Governor Andrew Bailey, who speaks on Friday, voted to hold at 3.75%. Their remarks will show how firmly the committee is leaning towards a November move. The Chancellor’s 28 October Budget adds a further test, with higher gilt yields having already squeezed the government’s fiscal room, so UK borrowing costs and fiscal signals could matter for sterling as much as the data.
The week ahead:
- US inflation (September) – 14/10 – GBPUSD, EURUSD
- ECB President Lagarde speaks – 14/10 – GBPEUR, EURUSD
- UK GDP (August) – 15/10 – GBPUSD, GBPEUR
- Fed Chair Warsh speaks – 15/10 – GBPUSD, EURUSD
- BoE Governor Bailey speaks – 16/10 – GBPUSD, GBPEUR
With several high-impact releases and central bank speeches due, it is worth speaking with your currency specialist about how these developments could affect any transfers you have planned in the coming weeks.
