Market Overview

Currency markets enter the week focused on central bank decisions, inflation and fiscal policy. Recent developments have createddifferent pressures for each currency: sterling is balancing persistentinflation against a weaker domestic economy, the euro is being weighed down bypolitical and debt concerns in France, and the US dollar has struggled toattract safe-haven demand despite geopolitical uncertainty.

The main events are the UK Autumn Budget, the Federal Reserve and European Central Bank meetings, US inflation data and eurozone growth figures. These releases could shift expectations for future monetary policy and influence currency performance.

British Pound (GBP)

Sterling has received support from expectations that the Bank of England may need to maintain a tighter policy stance for longer. UK inflation rose to 3.5% in September, up from 3.1% in August, driven partly by higher fuel costs. Services inflation also increased, suggesting that domestic price pressures remain persistent. This makes it more difficult for policymakers to ease monetary policy quickly.

However, the economic picture is mixed. Weaker retail sales and declining consumer confidence suggest house holds are under pressure from higher living costs. Government borrowing and public debt have also become more prominent concerns ahead of the Autumn Budget on Wednesday. Investors will be looking for credible plans to manage public finances without placing excessive pressure on economic growth.

Key events to watch

• Tuesday 27 October: BRC Shop Price Inflation, providing an indication of price pressures in retail.
• Wednesday 28 October: UK Autumn Budget. Tax, spending and borrowing plans could affect investor confidence in the UK economy.
• Thursday 29 October: Bank of England credit, mortgage approvals and lending data, offering insight into household borrowing and demand.
• Friday 30 October: Nationwide house prices and the BoE Decision Maker Panel, which provides information on businesses’ inflation and wage expectations.

Outlook: Sterling’s near-term direction will dependon the balance between persistent inflation and concerns about economic growth. A credible Budget and continued expectations of tighter BoE policy could support the pound. Conversely, weaker economic data or concerns about government borrowing could undermine sentiment.

Euro (EUR)

The euro remains vulnerable to political uncertainty and concerns about public finances, particularly in France. Recent protests and difficulties surrounding fiscal reforms have unsettled investors, while French government borrowing costs have risen sharply. The concern is that political instability could make it harder for France to control its deficit and debt, adding to wider uncertainty about the eurozone economy.

Higher energy costs are another risk. Rising oil and gas prices can increase inflation while weakening household purchasing power and raising costs for businesses. This creates a difficult environment for the European Central Bank, as persistent inflation may limit its flexibility while weak growth argues for caution.

Key events to watch

• Monday 26 October: German IFO business climate, an important measure of business confidence and expectations in Europe’s largest economy.
• Wednesday 28 October: German GfK consumer confidence, providing insight into household spending intentions.
• Thursday 29 October: Eurozone consumer confidence and the European Central Bank policy decision.
• Friday 30 October: Preliminary third-quarter GDP for Germany and the eurozone, German labour-market data and German inflation.

Outlook: The euro faces a challenging backdrop, with fiscal concerns in France and uncertainty over economic growth likely to limit confidence. Stronger-than-expected GDP figures or a more reassuring ECB assessment could provide support. However, disappointing data or renewed political tensions could leave the currency under pressure.

3. US Dollar (USD)

The dollar has weakened for a second consecutive week, despite geopolitical tensions and weaker risk appetite. Normally, uncertainty can encourage investors to seek safe-haven assets such as the US dollar. However, declining US Treasury yields and concerns about technology-sector valuations have limited its appeal. This suggests that interest-rate expectations and investor positioning are currently important drivers alongside geopolitical developments.

The Federal Reserve meeting on Wednesday will be closely watched. Although policymakers are expected to leave policy unchanged, investors will look for clues about the outlook for inflation and future policy decisions. The latest data will be particularly important in assessing whether the US economy remains resilient and whether price pressures are easing sufficiently.

Key events to watch

• Wednesday 28 October: Federal Reserve policy decision and accompanying communication.
• Thursday 29 October: Third-quarter GDP revision, PCE inflation, personal income and spending, and initial jobless claims. PCE inflation is particularly important because it is a key  measure monitored by the Fed.
• Friday 30 October: Chicago PMI, Employment Cost Index and speeches from Federal Reserve officials.

Outlook: The dollar could recover if inflation remains firm, economic activity proves resilient or the Fed signals less scope for future policy easing. Softer inflation and weaker growth could reinforce expectations of a more accommodative policy outlook and weigh on the currency. Geopolitical developments and movements in Treasury yields will also remain important.

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