22 September 2025

GBP: Sterling softens as dovish signals emerge

After last week’s Bank of England decision to hold rates at 4%, sterling has struggled to maintain its footing. The vote split, with only two policymakers favouring a 25bp cut, introduced a dovish undertone that markets were quick to price in. GBP/USD slipped by two cents, while GBP/EUR lost one cent, reflecting a recalibration of rate expectations.

This week, the UK data calendar is lighter, but not without influence. Governor Andrew Bailey’s speech on Monday evening and Huw Pill’s remarks on Tuesday could offer further clues on the Bank’s internal debate.

Markets are watching closely: according to Bloomberg, the probability of a further rate cut this year stands at just 29%. That low conviction underscores the uncertainty facing sterling, with policymakers weighing up whether to hold steady or move pre-emptively as economic signals evolve.

Tuesday’s PMI prints will add texture to the narrative. Manufacturing is expected to tick up slightly to 47.2, still in contraction territory, while services may ease to 53.6. These figures won’t move the dial dramatically, but they’ll help shape sentiment around the UK’s growth trajectory.

EUR: Quiet calendar, strong positioning

The euro enters the week with momentum, having reached a four-year high against the US dollar. EUR/USD’s recent rally reflects both euro resilience and dollar softness, a dynamic that could persist if US data continues to disappoint.

Europe’s economic calendar is subdued, with Tuesday’s PMI releases the main event. German manufacturing is forecast to edge into expansion territory at 50.1, a symbolic move that could support euro sentiment. Broader EU PMI results are expected to remain rangebound.

On Thursday, the Swiss National Bank announces its latest interest rate decision. Markets aren’t expecting surprises here, a hold at 0% is widely anticipated, but it’s a reminder that policy divergence across the region remains a key theme.

With the ECB meeting on Thursday, markets will be listening closely for any shift in tone. While no rate change is expected, commentary around inflation persistence and growth risks could influence euro positioning.

USD: Fed cuts stir volatility, CPI and PCE in focus

The Fed’s decision to cut rates by 25bp last week marked a turning point in US monetary policy. While most policymakers backed the move, Stephen Miran’s vote for a 50bp cut, and his ties to President Trump, added a political dimension to the dovish pivot.

The dollar weakened in response, with EUR/USD climbing to multi-year highs and GBP/USD briefly touching a two-month peak. The Fed’s forward guidance suggests two more cuts are likely this year, keeping the door open for further USD softness.

This week’s US calendar is packed. Tuesday’s PMI data is expected to show a slowdown in both manufacturing (to 51.6) and services (to 53). Fed Chair Powell speaks later that day, and Thursday brings Q2 GDP revisions (likely unchanged at 3.3%). But the real market mover could be Friday’s PCE inflation data, which is the Fed’s preferred gauge. Any surprise here could spark volatility across USD pairs.

North American policy watchers will also be tuning in to Bank of Canada Governor Tiff Macklem’s speech on Tuesday evening, where he’ll outline Canada’s monetary policy outlook for the remainder of the year. With the BoC facing similar questions around growth and inflation, Macklem’s remarks could influence broader sentiment across North American FX markets.

Author 

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.