GBP: Sterling pressured by policy uncertainty
Sterling has weakened steadily over the past month, weighed down by softer UK data, rising fiscal uncertainty, and a dovish repricing of Bank of England (BoE) expectations. Markets now see the terminal rate closer to 3.30%, down from 3.60% only weeks ago. The accompanying decline in gilt yields has eased pressure in bond markets and provided the Treasury with an estimated £5 billion in additional fiscal flexibility. However, this has offered little comfort to the pound, which continues to struggle under the weight of a softer growth outlook and expectations of future rate cuts.
While a BoE hold this week could deliver a brief relief rally, the broader direction remains downward. The Bank is still expected to ease policy before year-end, keeping sterling biased lower. The 26 November Budget adds another layer of risk, with speculation over substantial tax increases fuelling uncertainty that the currency typically dislikes. Even if the event removes some near-term ambiguity, the growth implications of tighter fiscal policy could ultimately weigh on sterling further.
In short, sterling may find fleeting support after the BoE meeting and Budget, but the wider policy and macro environment remains challenging. Any rallies are likely to be modest and short-lived.
USD: Dollar momentum underpinned by resilient data
The dollar advanced overnight after the ISM manufacturing survey indicated another month of contraction, with the headline index slipping to 48.7. Beneath the surface, though, the details were somewhat more encouraging: improvements in new orders and employment suggest firmer underlying demand. The decline in inventories weighed on the headline but appears justified given ongoing supply frictions.
After an initial dip, the dollar regained strength as investors digested the full report and reacted to Fed Governor Goolsbee’s comment that a December rate cut is now less likely. Broader macro factors continue to lend support, including strong corporate earnings, easing trade tensions, AI-driven optimism, and a still-hawkish Fed stance. With positioning leaning long and technical momentum strong, it would take a notably soft labour print to disrupt the dollar’s current trend.
EUR: Bearish bias persists as technicals soften
The euro slid to a three-month low against the dollar, decisively breaking below its 21-, 50-, and 100-day moving averages and now trading close to the still-upward-sloping 200-day average. The setup points to continued short-term weakness, though the relative strength index near the 35–40 band suggests conditions are approaching oversold territory. Buying interest may emerge around the 1.15 support level, but any rebound is likely to be modest unless US data disappoints.
Against sterling, the euro has pushed up to 0.8822 – its highest since early 2023 – driven more by GBP underperformance than by broad euro strength. EUR/GBP continues to test resistance at 0.88, which could give way if the BoE signals a dovish bias or the UK Budget underscores a tighter fiscal path.
Looking ahead
Focus now shifts to Thursday’s BoE decision and the forthcoming UK Budget, both crucial in shaping near-term sterling direction. In the US, labour market data later this week will be key for the dollar’s momentum, while euro traders eye upcoming regional inflation releases. The broader narrative still favours the dollar, with both sterling and the euro constrained by domestic headwinds and policy uncertainty.
