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Sterling has burst through to its best since June 2025 against the euro this morning, a rise of 1.5% in the past week. It follows heavy selling of the euro in Asian trading early today, with USD/EUR also at its best since spring 2025, close to 4% up in the past month.
The pound strengthened against the dollar on Friday after weaker-than-expected US jobs figures (Non-Farm Payrolls) dented confidence in another Federal Reserve interest rate rise, but those gains have been reversed this morning.
Nevertheless, the American jobs machine has wobbled. US employers added just 29,000 jobs in September, well below expectations, while unemployment edged up to 4.2% and wage growth slowed. All with the Midterm elections just one month away. Even so, GBP/USD remains 2% down on last month and has resumed its decline this morning.
Oil remains the biggest threat to the global economy, with Brent Crude still over $100 per barrel. The oil producers group OPEC+ agreed on Sunday to keep production steady in November, thus keeping the price high. Diesel prices in Britain are already at record levels, around £2 per litre. That feeds into exorbitant transport and other costs for business, which are bound to be passed onto households.
Europe is certainly feeling this. Eurozone inflation rocketed upwards to 3.8% last month, its highest in three years, from 3.2% in August. ‘Core inflation’ with fuel and fuel removed was a more manageable 2.5%, but the European Central Bank faces higher prices at the same time as concerns over government finances, particularly in France, have unsettled bond markets. That’s what caused the sell off which has so benefitted sterling this morning.
Britain itself enters the week in slightly calmer shape, although the FTSE100 remains 2.5% down on last week. Attention is now turning towards the Budget, in a little over three weeks.
Monday’s economic diary is relatively light, but PMI figures from Britain, Europe and the United States should provide the first test of the new week. Markets will want to know whether America’s jobs slowdown is becoming a wider loss of momentum, or whether Friday was simply one weak number.
GBP: Pound starts the week on a high
Sterling has started October at its best against the euro in 16 months. However, lest you assume that this is entirely down to new positivity about UK finances, there is a bit of that, with GDP rising, but it has benefited more from worries over European government finances and the impact of rising energy costs. Coming up today, services PMI (Purchasing Managers Index) figures could matter more than usual if they challenge the recent evidence that the British economy has held up reasonably well.GBP/USD: the past year
EUR: Inflation and French finances put skids under euro
Last week was not a happy time for the euro as it sank by 1% against the pound and US dollar, and another 0.5% this morning. Inflation is rising quickly enough to keep pressure on the European Central Bank, yet concerns over public finances are making investors nervous about parts of the bloc’s bond market, especially in France. Energy worries remain central, and yesterday’s decision by major oil producers to hold output steady means there is little immediate relief on that front, leaving the euro vulnerable to the next move in oil and European borrowing costs.GBP/EUR: the past year
USD: Jobs miss cools rate expectations
Friday’s jobs report changed the conversation around the dollar. Payroll growth fell well short of forecasts, unemployment rose to 4.2% and annual wage growth slowed to 3%. Investors responded by reducing expectations for another Federal Reserve rate rise in October, and the dollar weakened after the release. However, it has bounced back this morning. The question now is whether other US data tell the same story. Monday’s services surveys will offer the first clue. A weaker reading would add weight to the idea that higher borrowing costs are beginning to bite, while a resilient services sector could quickly revive the debate over whether the Federal Reserve still has more work to do.USD/GBP: the past year
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