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 theBank of England may need to maintain a tighter policy stance for longer. UKinflation rose to 3.5% in September, up from 3.1% in August, drivenpartly by higher fuel costs. Services inflation also increased, suggesting thatdomestic price pressures remain persistent. This makes it more difficult for policymakers to ease monetary policy quickly.

However, the economic picture is mixed. Weaker retail salesand declining consumer confidence suggest households are under pressure fromhigher living costs. Government borrowing and public debt have also become moreprominent concerns ahead of the Autumn Budget on Wednesday. Investors will belooking for credible plans to manage public finances without placing excessivepressure 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 couldsupport the pound. Conversely, weaker economic data or concerns aboutgovernment borrowing could undermine sentiment.

Euro (EUR)

The euro remains vulnerable to political uncertainty andconcerns about public finances, particularly in France. Recent protests anddifficulties surrounding fiscal reforms have unsettled investors, while Frenchgovernment borrowing costs have risen sharply. The concern is that politicalinstability 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 gasprices can increase inflation while weakening household purchasing power andraising costs for businesses. This creates a difficult environment for the European Central Bank, as persistent inflation may limit its flexibility whileweak 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, withfiscal 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 renewedpolitical 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-sectorvaluations have limited its appeal. This suggests that interest-rateexpectations and investor positioning are currently important drivers alongsidegeopolitical 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 policydecisions. The latest data will be particularly important in assessing whetherthe US economy remains resilient and whether price pressures are easingsufficiently.

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 inflationremains firm, economic activity proves resilient or the Fed signals less scopefor future policy easing. Softer inflation and weaker growth could reinforceexpectations of a more accommodative policy outlook and weigh on the currency.Geopolitical developments and movements in Treasury yields will also remainimportant.

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