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US wholesale prices rose 6.3% in the year to September, the fastest annual increase since December 2022.
It has been a strange week for the dollar. Prices in the US rose much faster than expected, which would normally give the dollar a lift. For a day or so it did, climbing to its highest level in 18 months. Then it slipped back, and it is now on course for its first losing week in more than a month. The pound, meanwhile, has just had its best day against the dollar since August.
The price rises were real enough. Shoppers in the US are paying 3.7% more than a year ago, and the costs businesses pay for goods and materials have jumped even faster. Fuel is the main culprit. Americans spent more in September, but most of that extra money went on petrol rather than anything else.
So why didn’t the dollar keep climbing? Because what really moves a currency is what happens to interest rates, and the people who set them in the US are in no hurry. Several officials at the Federal Reserve, America’s central bank, have said they can afford to wait and see. Investors now think a US rate rise this month is unlikely, even if most still expect one before Christmas.
Britain’s week has been close to the opposite. Its economy grew in August when most forecasters expected it to shrink, helped partly by businesses spending on artificial intelligence. That makes it very likely the Bank of England will raise interest rates in early November, from 3.75% to 4%, and higher rates tend to make a currency more attractive to hold. That is why the pound has had the better of the week.
Next week brings fresh figures on British jobs and prices. They will help show whether November’s rise is likely to be a one-off or the first of several, and that will go a long way to deciding whether the pound can keep climbing.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Account manager on 020 3918 7255 to get started.
GBP: Bank downplays further rises
Huw Pill, the Bank of England’s chief economist, has been keen to stress that November’s expected rate rise would not mark the start of a long climb. Markets should not assume the Bank is “on another staircase” like 2022 and 2023, he said, while Deputy Governor Sarah Breeden said she had been surprised by how well the economy had absorbed the energy shock. That message has helped keep a lid on the pound, even as growth surprised on the upside.
GBP/USD: the past year
EUR: Questions over ECB leadership
The euro has spent the week close to its weakest against both the pound and the dollar since mid-2025, before recovering a little ground as the dollar eased. A report that European Central Bank (ECB) President Christine Lagarde could be named chair of the World Economic Forum as soon as early November, leaving the ECB before her term ends in 2027, adds a leadership question to a currency already weighed down by France’s finances. Final eurozone inflation figures are expected to confirm prices rising 3.8% a year, ahead of the ECB’s decision on 29 October.
GBP/EUR: the past year
USD: Warsh offers no rate signal
Federal Reserve Chair Kevin Warsh used his last public appearance before the Fed’s quiet period .give nothing away, saying the central bank was “not in that business anymore” when it came to signalling decisions in advance. Markets read that as little reason to expect a move at the 27–28 October meeting, and the chance of a rate rise fell to roughly one in six. He was far more expansive on artificial intelligence, which he said would fundamentally change how the Fed sets interest rates.
USD/GBP: the past year
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