29 September 2025

GBP

The pound continues to underperform amid growing concerns over the UK’s fiscal outlook. Weak growth and rising public sector demands are fuelling debate around government spending and borrowing - especially as the Labour Party conference gets underway this week.

Calls for increased investment in public services are expected to dominate the agenda, adding pressure to an already fragile fiscal narrative. For FX markets, any signs of fiscal loosening could weigh further on the pound, particularly if accompanied by soft economic data.

Monetary policy remains a key driver. Bank of England policymaker Swati Dhingra has called for further rate cuts, arguing that the recent inflation spike is likely to fade and that the Bank can afford to cut rates further without compromising its inflation target. However, other committee members remain cautious, citing persistent food price pressures and elevated household inflation expectations.

Markets currently expect one more BoE rate cut this year, followed by additional easing in 2026. Governor Andrew Bailey’s speech on Friday will be closely watched for any shift in tone.

EUR

In the eurozone, inflation expectations are creeping higher. The European Central Bank’s latest Consumer Expectations Survey showed median 12-month inflation expectations rising to 2.8% in August (from 2.6%), while five-year expectations hit 2.2% - the highest since August 2022. This reinforces the ECB’s cautious stance and suggests limited appetite for near-term rate cuts.

This week is one of the busiest for ECB commentary, with two-thirds of the Governing Council scheduled to speak, some of whom will do so multiple times. Key events include:

• Tuesday: President Christine Lagarde and senior policymakers at a conference in Finland
• Friday: A high-profile gathering in Amsterdam marking the departure of Dutch Governor Klaas Knot

These appearances could offer valuable insight into the ECB’s evolving stance.

USD

The US dollar climbed to multi-week highs last week as investors scaled back expectations for aggressive Fed rate cuts. Markets now anticipate just a 40bp reduction by the end of 2025, followed by a further 110bp across 2026. This shift reflects a series of stronger-than-expected economic data releases, reinforcing the view that the Fed may need to keep rates elevated for longer to contain inflationary pressures.

However, political risk is creeping back into focus. A potential government shutdown looms, with Congress yet to approve a funding bill ahead of the new fiscal year starting on 1 October. Without a resolution, key government functions could grind to a halt. President Donald Trump is expected to meet congressional leaders early this week in search of a compromise.

Investor attention is turning to a packed US data calendar this week, with several key releases that could influence the dollar’s direction and shape expectations for future Fed policy.

On Tuesday, we’ll get the latest JOLTS job openings and the ISM manufacturing index, and Wednesday brings the ADP private employment survey, a precursor to Friday’s official jobs report. While not always perfectly aligned with Non-Farm Payrolls, ADP data can still sway market sentiment, especially if it deviates significantly from forecasts.

The week culminates on Friday with the release of the September Non-Farm Payrolls report, expected to show an increase of 50,000+ jobs, up from just 22,000 in August. While this would mark a modest rebound, the last two prints have significantly undershot forecasts - raising questions about the underlying strength of the US labour market.

These releases will be pivotal in confirming whether the recent economic strength justifies a slower pace of rate cuts - or if the Fed may need to reconsider its stance. 

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.