Monday 3rd November 2025
GBP Hits Fresh Lows as Markets Brace for BoE and Budget Risks
Last week, the Pound’s downward trend persisted, with GBP/EUR falling to a two-year low and Cable slipping below 1.33, marking its lowest level since August. Technical indicators suggest that the Pound may be oversold, as the Relative Strength Index (RSI) has reached 30, typically a sign that selling pressure is becoming exhausted. However, sentiment remains subdued ahead of November’s Budget, with expectations of tax increases weighing on the UK’s economic outlook. This week, the focus turns to the Bank of England’s interest rate announcement. Traders are increasingly betting on faster and deeper rate cuts, given that inflation concerns persist and unemployment is gradually rising. Should the Monetary Policy Committee (MPC) choose not to cut rates, pressure could build for more significant policy moves in 2026.
Historically, the Pound tends to weaken in the run-up to UK Budgets, and with memories of the last Labour Budget still fresh, there is a heightened risk that this pattern could repeat. As the new week begins, Cable starts just below 1.315, while GBP/EUR remains under 1.14, leaving sterling vulnerable to further volatility in the days ahead.
Fed Cuts Rates and Ends QT as Dollar Recovery Gains Momentum
As widely expected, the Federal Reserve cut interest rates by 25 basis points and announced that quantitative tightening (QT), the process of reducing its balance sheet, will end on December 1st. This means the Fed will allow its bond holdings to mature without replacement, effectively withdrawing liquidity from the financial system. This move is typically aimed at tightening financial conditions and pushing short-term market interest rates higher, which in turn tends to support USD.
Despite the rate cut, Chair Jerome Powell struck a hawkish tone, emphasising that the Fed is ‘not on a preset path’ and that a December cut is ‘not a done deal’. His comments suggested a cautious stance toward further easing and reinforced the Fed’s data-dependent approach. The market reacted swiftly, with Cable falling 0.6%, while the Dollar gained nearly 1% against the Euro by the end of the week. The DXY index closed October up around 2%, marking a surprise rebound for USD. Looking ahead, these gains could extend if the UK’s upcoming budget triggers renewed market uncertainty.
Euro Holds Firm Against Pound as Dollar Recovery Gains Pace
The Euro also felt the impact of the Dollar’s renewed strength, posting a notable loss against USD while simultaneously gaining ground against the pound, sending GBP/EUR to a two-year low. As the new week begins, EUR/USD trades just above 1.15, while EUR/GBP opens around 0.87. In the EUR/GBP pairing, bond yields have played a significant role. The UK’s 2-year yield has declined, while the German 2-year yield has risen, narrowing the UK–Germany yield spread. This shift reduces the UK’s yield advantage and has prompted capital flows toward the eurozone, lending further support to the Euro.
Meanwhile, the Dollar continues to recover against the Euro, attempting to claw back some of the 11.25% gain the Euro has recorded against the Dollar year to date. The coming sessions will determine whether the Dollar rebound can sustain momentum or if the Euro’s dominance in 2025 will reassert itself. Nonetheless, the opportunity for the Euro to extend gains against GBP appears to remain in place for the rest of 2025.
This Weeks Market Moving Data
An interesting week lies ahead for both the Eurozone and the UK. In the Eurozone, attention will be on retail sales data, offering fresh insight into the economy’s health across the bloc. Meanwhile, in the UK, all eyes are on Thursday’s Bank of England interest rate decision, the key event of the week.
Across the Atlantic, the US government shutdown continues to weigh on the data calendar, delaying the release of GDP figures. As a result, focus shifts to ISM Services PMI and any unexpected fiscal headlines that could sway market sentiment.
Tuesday 4th November
ECB President Lagarde’s Speech:
Lagarde, the leader of the European Central Bank, will deliver a speech regarding monetary policy and will be offering insights into future policy direction.
Wednesday 5th November
ISM Services PMI:
The ISM Services PMI is significant for USD because it provides one of the few timely indicators of overall economic health, covering the country’s dominant services sector. During a government shutdown, it becomes even more important since many official reports like GDP or retail sales are delayed, making the ISM data a key guide for traders and policymakers assessing the US economy’s health.
Thursday 6th November
Eurozone Retail Sales Data Release:
The Eurozone Retail Sales data is a great economic indicator of consumer spending across the bloc, as it measures the volume of sales of goods by retailers directly to end customers. A strong reading is generally seen as bullish for the Euro, while a weak weeding is seen as bearish.
BoE Interest Rate Decision:
The most important data release of the week is the Bank Of England’s interest rate decision. A rate cut or dovish tone could ease government borrowing costs ahead of the Autumn Budget, potentially giving the Treasury more fiscal room, while a hawkish stance might tighten conditions and limit fiscal flexibility.
