Sterling ended the week marginally softer against both the Dollar and the Euro, but the modest scale of those moves masks a deeper recalibration in investor expectations. UK inflation data for September landed below forecasts, holding steady at 3.8 percent. For the first time in this cycle, markets are now seriously entertaining the possibility of a Bank of England cut as soon as November.
However, late-week trading offered a counterpoint. Revised PMI data revealed that UK private sector activity edged back into expansion territory in October, with the composite index rising to 51.1. Manufacturing, long a drag on the post-pandemic recovery narrative, posted its highest reading in a year at 49.6. Though still below the crucial 50 level, the upward trend suggests a stabilisation narrative that had been missing for much of 2025.
The interplay between easing price pressures and recovering business activity is now reshaping the monetary policy outlook. Sterling briefly regained ground to trade above 1.33 against the Dollar, and settled just shy of 1.145 against the Euro.
In contrast, the Dollar continues to feel the weight of geopolitical ambiguity and patchy data availability, as the US government shutdown delays key releases. Last week’s inflation print came in below expectations at 0.3 percent month on month, reinforcing dovish expectations ahead of this week’s Federal Reserve decision.
The Euro, by comparison, has found modest support. October’s services PMI showed the strongest expansion since August 2024, bolstered by new orders and accelerating employment gains. Markets responded positively, lifting EUR/USD toward 1.16 and EUR/GBP above 0.87.
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