Monday 27th October 2025
Sterling Falls as Softer Inflation Fuels Rate Cut Expectations
The British Pound endured a difficult week as concerns over the UK’s economic outlook and the looming Autumn Budget weighed heavily on sentiment. Sterling weakened after September inflation stayed at 3.8%, below forecasts, fuelling expectations the Bank of England could cut rates as early as November.
Despite earlier losses against both the Dollar and the Euro, the Pound recovered some ground on Friday, trimming weekly declines to just over 0.5% versus the Dollar and around 0.4% against the Euro. This recovery followed encouraging PMI data showing the UK’s private sector activity reached a two-month high in October.
The S&P Global Composite PMI rose to 51.1 from 50.1, signalling renewed growth momentum.
Notably, manufacturing showed signs of stabilising, with the PMI rising to 49.6, its strongest reading in a year and close to the 50 threshold separating contraction from expansion. The improved data lifted sentiment, ultimately above 1.33 and GBP/EUR hover just below 1.145 as the new week begins.
Overall, while Sterling remains under pressure from fiscal and inflation concerns, signs of resilience in UK economic activity have offered the currency some much needed support.
Softer Inflation Data and Geopolitical Risks Keep Dollar Under Pressure
Last week marked the first time in nearly two weeks that a US federal agency released economic data, as the government shutdown is creating a blackout of key indicators and has deepened uncertainty around the economic outlook.
USD softened on Friday after US inflation rose 0.3% month on month in September, below market expectations of 0.4%. The annual headline rate eased to 3.0% from 3.1%. This slowdown in price growth has strengthened expectations for a Federal Reserve rate cut in the coming months, with markets increasingly pricing in easing before 2026.
On the political front, the US and China agreed on a framework for a potential trade deal to be discussed when their leaders meet later this week, a development that could, in theory, support the Dollar. However, renewed sanctions on Russia’s Rosneft and Lukoil have added to geopolitical tensions, reminding markets that volatility remains high.
Euro Edges Higher as Market Sentiment Improves Ahead of Year-End
The Euro edged higher last week, gaining 0.3% against USD and 0.6% versus GBP, as EUR/USD hovered near 1.16 and EUR/GBP held above 0.87. The Euro’s strength was driven partly by weakness in USD and GBP – but also by encouraging Eurozone data.
The HCOB Eurozone Services PMI climbed to 52.6 in October 2025 from 51.3 in September, marking the sector’s strongest expansion since August 2024. Growth was underpinned by a solid rise in new orders, the fastest since April 2023, and a renewed pickup in hiring following a brief decline the previous month.
Employment in services increased at the sharpest rate since June 2024, while firms reported the first accumulation of backlogs in 18 months, signalling stronger underlying demand. This improvement has lifted sentiment toward the Euro, and with potential global volatility on the horizon, the single currency could be poised for a stronger finish to 2025.
This Weeks Market Moving Data
Another week passes with the US government still in shutdown, hyper-partisanship continues to disrupt key economic data releases. Attention in the US now turns to Wednesday’s Federal Reserve interest rate decision, which will provide crucial insight into the central bank’s stance on the economy’s health amid limited data visibility.
In Europe, focus shifts to the upcoming GDP release and the ECB’s interest rate decision, while the UK faces a quieter week with few major market-moving reports expected.
Wednesday 29th October
Federal Reserve Interest Rate Decision: The Federal Reserve are expected to cut interest rates this Wednesday by 25 basis points.
Thursday 30th October
German Gross Domestic Product Data Release: Germany’s GDP release measures the growth or contraction of Europe’s largest economy, serving as a key indicator of overall Eurozone economic health.
A strong reading typically boosts confidence in the region and supports the Euro, while a weaker than expected result can raise recession fears and pressure the currency lower.
Eurozone Gross Domestic Product Data Release: The Eurozone GDP data release provides an official snapshot of the region’s economic growth, measuring changes in output across member countries. This will be a key indicator for assessing the European Central Bank’s policy trajectory.
European Central Bank Monetary Policy Statement: The GDP release will be followed by the European Central Bank’s monetary policy statement, where rates are widely expected to remain unchanged. A subsequent press conference will provide further insight into the ECB’s outlook and potential future policy direction.
