By James Caley
Sterling has traded with a steadier tone through most of the week, supported initially by in-line UK inflation figures, before softening late in the day yesterday. The September CPI data held at 3.8% year-on-year, matching expectations and removing any pressure for immediate Bank of England action. However, a speech from BoE policymaker Swati Dhingra, who noted that “underlying inflation pressures are easing” and highlighted signs of slowing growth, prompted a reassessment of UK rate expectations. That shift saw GBP/EUR fall around half a cent in the space of an hour as markets priced in a slightly higher probability of a rate cut in early 2026.
Across the Eurozone, data releases this week painted a mixed picture, but overall tone remains cautious. While PMI readings indicated fragile growth momentum, input-price pressures continued to ease, and several ECB officials reiterated a wait-and-see approach ahead of next week’s Governing Council meeting. This restrained messaging has capped Euro upside for most of the week, but Sterling’s late-session weakness gave EUR a temporary lift. As a result, GBP/EUR retraced recent gains, and EUR/USD held within a narrow band as traders avoided large directional bets ahead of central-bank risk.
In the US, a run of resilient housing data helped maintain Dollar strength. Existing home sales came broadly in line with forecasts, reinforcing the picture of a still-solid US economy. Those prints, combined with stable Treasury yields, limited any sustained GBP/USD recovery and kept EUR/USD contained near recent ranges. With investors reluctant to fade the Dollar ahead of next week’s central-bank decisions, the greenback continues to benefit from its yield advantage and safe-haven appeal.
Looking ahead, the focus now shifts to a data-heavy week starting 27 October, dominated by the FOMC meeting on 29 October and the ECB decision on 30 October. The Fed’s updated guidance and tone will be critical in shaping the near-term path for the Dollar, while the ECB’s statement could determine whether the Euro holds its recent footing. Later in the week, US preliminary GDP and PCE data will offer fresh insight into growth and inflation momentum.
Meanwhile, this morning is looking busy with, UK retail sales, UK PMI data and inflation rate for the US which can all shift the markets when the reading comes significantly above or below expectations. Sterling’s late-week dip underscores how sensitive GBP remains to any hint of dovish BoE rhetoric, suggesting further volatility into month-end if the data or central-bank tone diverge from expectations.