ECB leaves interest rates unchanged citing a resilient economy
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Daily Currency Update
The pound slipped against both the euro and the US dollar, weighed down by weaker-than-expected shop price inflation, which fell 0.3% in September. The softer data has fuelled speculation that Chancellor Rachel Reeves may face even tougher fiscal decisions in her upcoming Budget. Meanwhile, renewed concerns over the UK’s public finances - with reports of a sizeable fiscal shortfall ahead of the autumn statement - added further pressure to sterling sentiment.
The euro has traded steadily around the 1.1580 level over the past 24 hours, as markets digest the European Central Bank’s decision to keep interest rates unchanged. The ECB noted that the “domestic economy is showing resilience,” while President Christine Lagarde highlighted that inflation remains close to target. However, the Governing Council offered little fresh guidance on the policy outlook.
The US dollar regained momentum, with the dollar index strengthening after the Federal Reserve’s latest rate cut was interpreted as measured rather than aggressive. This reinforced the view that the Fed remains cautious but not firmly committed to a sustained easing cycle. At the same time, the 10-year US Treasury yield edged higher, drawing capital flows into the dollar as investors compared US yields with global alternatives.
Key Movers
The euro is likely to be guided by any nuanced comments from European Central Bank (ECB) officials this week, particularly around whether they see inflation risks becoming more persistent. With Germany showing soft growth and inflation across the Eurozone holding steady, markets will assess if the ECB plans to stay the course rather than hint at early easing. In short, the euro could gain modestly if policymakers sound cautious about cutting rates - but may drift lower if their tone turns more dovish.
Sterling’s movement will hinge less on data releases and more on how investors interpret the UK government’s response to fiscal and economic pressures. Traders will be watching for any clues ahead of Chancellor Reeves’ upcoming Budget - whether policy leans toward tightening or supporting growth. Signals of coordination between the Treasury and the Bank of England, or hints of targeted interventions, could sway GBP sentiment more than the figures themselves.
Rather than focusing solely on whether the Federal Reserve will cut rates again, markets will be listening closely to how the Fed frames its uncertainty. If officials adopt a “wait-and-see” tone, acknowledging lingering inflation risks, the dollar could strengthen. Conversely, if the Fed highlights weak labour data or downside risks - suggesting further accommodation - the dollar may soften as investors price in a longer easing cycle.
Expected Ranges
- GBP/USD: 1.3115 - 1.3165 ▼
- GBP/EUR: 1.1340 - 1.1390 ▼
- GBP/AUD: 2.0065 - 2.0115 ▼
- EUR/USD: 1.1530 - 1.1580 ▼