Tuesday 7th October 2025
Sterling Edges Higher Amid Slowing Business Activity and Inflation Concerns
Sterling posted modest gains last week, with GBP/USD starting around 1.347 and
GBP/EUR at 1.147, as the currency managed to hold firm into the weekend. It was a
week of slight but steady gains for Sterling, which managed to limit downside
pressures despite data showing business activity growth slowing to a five-month low.
The UK PMI survey indicated that firms and households are growing more cautious
about major spending decisions ahead of Chancellor Rachel Reeves’ budget in eight
weeks. This uncertainty, combined with lingering inflation pressures, has weighed on
both demand and hiring momentum. A separate Bank of England survey revealed
that businesses now report the weakest hiring intentions since 2020, alongside
expectations for the fastest pace of consumer price inflation since early 2024.
With the BoE not expected to adjust policy at November’s meeting, Governor Andrew
Bailey addressed monetary policy in his recent speech. Calls for easing were pushed
further back after he acknowledged the persistence of current inflationary pressures.
US Dollar Holds Steady Amid Government Shutdown and Anticipated Fed Cuts
Political headwinds continue to weigh on the US as the government shutdown enters
its second week, delaying key data releases, including nonfarm payrolls, and leaving
investors without one of their most closely watched economic indicators. Despite
this, the Dollar has remained relatively resilient, showing little significant weakness
amid the shutdown as gains of the Euro and Pound against the Dollar have been
relatively small considering the circumstances.
Democratic and Republican leaders remain ‘far apart’ on resolving the partial government closure, with another day of voting scheduled for Monday. On the monetary policy front, markets are now fully pricing in a 25bps rate cut at the October FOMC meeting, with expectations for
roughly 47bps of total easing by year-end
Euro Supported by ECB Caution Amid Policy Divergence, But French Political Uncertainty Looms
The Eurozone saw stronger than expected PMIs, alongside signals that the ECB is
likely to proceed cautiously with rate normalisation. Growth momentum in Germany,
Italy, and Spain has pushed the bloc’s services sector to an eight-month high, though
France continues to weigh on the region amid persistent political uncertainty. With
the ECB unlikely to cut rates, while both the Bank of England and the Federal
Reserve are expected to continue easing, the Euro could benefit from these relative
policy differences and extend its already strong yearly gains. Political uncertainty in
the Eurozone persists. The recent resignation of French Prime Minister Sébastien
Lecornu, France’s third PM since last December, adds a fresh headwind, leaving the
Euro more vulnerable at the start of the week.
This Weeks Market Moving Data
Regarding the UK and US, data releases remain relatively light, as ongoing US
negotiations over funding proposals have led to the postponement of key market-
moving indicators. However, a few marquee releases could create an opportunity for
the euro to recover after Lecornu’s resignation.
Monday October 6 th
Eurozone Retail Sales Data
Eurozone retail sales data is a key indicator of consumer spending, which drives a
large portion of economic growth in the region. A positive reading could potentially
limit the losses of Lecornu’s resignation or in turn exacerbate the Euro’s tough start to the week.
BOE Governor Speech and ECB President Speeches
The leaders of the European Central Bank and the Bank of England will deliver
speeches on monetary policy and will be offering insights into future policy direction.
Thursday 9 th October
Federal Reserve Chair’s Speech
Amid the government shutdown, key economic data has been delayed, making
Federal Reserve Chair Jerome Powell’s speech one of the few available insights into
the central bank’s policy stance and a potential driver of the dollar.
