This week, markets have been reacting to interesting developments with Sterling falling against the Dollar almost as quickly as James Cleverley in the Tory leadership race. It seems the US has shifted expectations around Federal Reserve interest rate cuts whilst The BoE hints at more aggressive cuts if inflation remains under control. As Root and Brook have a field day in Pakistan, here's what you need to know in the FX markets.

Key Updates:

• GBP: Sterling faced a rough week, dropping 2% against the Dollar. UK inflation remains a challenge, and anticipated Bank of England rate cuts in November are beginning to weigh on the Pound
• USD: Stronger-than-expected employment data in the US has shifted expectations around Federal Reserve interest rate cuts pushing bond yields higher and boosting USD’s strength.
• EUR: The Euro continues to weaken against the USD, with the market pricing in more ECB rate cuts due to slowing economic growth and persistent inflation concerns.

GBP

Sterling has experienced significant pressure recently, particularly against the Dollar, driven by increasing market speculation around an imminent Bank of England rate cut. Analysts now predict that the BoE could cut rates by 0.25% in November, as inflationary pressures ease and economic growth slows. According to recent reports, the UK services sector, a key driver of inflation, has shown signs of weakness, adding fuel to the rate-cut expectations​. This sentiment has led to a continued decline in GBP/USD, with the rate recently sliding to around 1.3070. Against the Euro, the Pound had a poor start to the week but has recovered to around 1.1950.

Key UK economic data to watch next week includes job figures (October 15) and inflation data (October 16). If these figures surprise on the downside, we may see further downward pressure on Sterling.

USD

The U.S. economy is driving global market movements this week, after a significantly stronger-than-expected September jobs report. This has led to a recalibration of market expectations, with investors now anticipating smaller future rate cuts from the Federal Reserve. U.S. bond yields have climbed as a result, making the dollar more attractive relative to other currencies​. ING’s Chris Turner noted that market expectations for the Fed’s terminal rate have been repriced 50 basis points higher in recent weeks, adding further support to the USD​.

Upcoming inflation data on October 10 and retail sales on October 17 will be key to determining whether this dollar strength continues.

EUR

The Euro has faced renewed selling pressure as the European Central Bank (ECB) is widely expected to cut interest rates again at its upcoming meeting on October 17. Economic indicators across the Eurozone remain weak, with inflation continuing to fall but growth also stalling. Despite this, the ECB’s cautious approach means that the Euro could see further downside, particularly against the USD​.

The spotlight is expected to be on the minutes from the European Central Bank's September policy meeting which we will see today.

Final Thoughts:

With market speculation around central bank rate cuts driving currency movements, the next few weeks could be important for exchange rates. Whether you’re planning conversions or watching for better rates, staying informed on key data releases like UK inflation and US CPI could provide insight into this volatile environment.

‍

A note to please continue to use support@blkfx.co.uk in your emails as well as your account manager to make sure someone in the team can pick up your query as soon as possible.

If you need any advice or have questions about how these trends might affect your specific situation, don’t hesitate to reach out!

You can always reach us via email at info@blkfx.co.uk, on WhatsApp: +44 7939 432196 or via phone: 020 8064 0617 or any of the team via their direct emails