Euro Hits 17-Month Low as US Dollar Strengthens | GBP, EUR and USD Market Update

Key Highlight

• The euro remains under pressure. It fell to a 17-month low against the dollar as concerns over France’s public finances and Spain’s snap election added to uncertainty across the eurozone.
• The US dollar strengthened. The dollar index reached its highest level since late June, supported by rising US service sector prices and expectations that the Federal Reserve could raise interest rates again.
• Sterling delivered a mixed performance. The pound weakened against the dollar but gained against the euro, supported by expectations of a November Bank of England rate rise, which markets have priced at around 84%.

Market Recap

US services activity eased slightly to 54.9 in September, just below the 55.0 forecast. However, employment returned to growth, while the prices paid component rose to its highest level since July 2022. This suggests inflationary pressures remain persistent, keeping the possibility of further Federal Reserve tightening in focus.

Within the eurozone, European Central Bank chief economist Philip Lane called for a measured approach to monetary policy, highlighting how weaker demand could help contain inflation. However, Bundesbank President Joachim Nagel warned that inflation risks remain tilted to the upside. These differing views underline the challenge facing the ECB as it balances inflation concerns against economic and financial pressures

Market Overview

Euro: Fiscal Concerns Weigh on Confidence

Although the euro recovered slightly after touching a 17-month low against the dollar, the underlying pressure remains. France continues to face concerns over its public finances, with borrowing costs remaining elevated, while Spain’s snap election announcement has added another source of political uncertainty.

Divisions within the ECB over the appropriate policy response are also complicating the outlook. Meanwhile, the dollar continues to benefit from its interest rate advantage, with the gap standing at approximately 1.41 percentage points. Unless confidence in France’s finances improves, the euro may struggle to sustain a meaningful recovery.

For businesses buying US dollars, further euro weakness could increase the sterling or euro cost of dollar-denominated imports and international payments. Those receiving dollars may benefit from more favourable exchange rates when converting them into euros.

Pound: Dollar Strength Limits Gains

Sterling slipped against the dollar as investors favoured the US currency, supported by rising bond yields and persistent inflationary pressures in the American services sector. However, expectations of further interest rate increases from both the Federal Reserve and the Bank of England mean neither currency has a clear monetary policy advantage over the longer term.

UK economic growth and the upcoming 28 October Budget remain important factors for sterling. Any signs of weaker domestic activity or uncertainty surrounding fiscal policy could put additional pressure on the pound.

For businesses making dollar payments, exchange rate movements could affect the cost of overseas invoices and supplier payments. Companies with upcoming currency requirements may benefit from monitoring the market closely as central bank signals and UK fiscal announcements develop.

Pound vs Euro: Sterling Nears Its Yearly High

Sterling is trading close to its strongest level against the euro this year, supported by concerns surrounding France and expectations of a November Bank of England rate rise. However, after such a rapid move, a period of consolidation or a short-term pullback would not be unusual.

Over the medium term, the pound could remain supported by its interest rate advantage of approximately 1.25 percentage points. Nevertheless, developments surrounding France’s budget and the UK’s 28 October Budget could influence the direction of the pair.

For UK businesses paying European suppliers, the pound’s recent strength may provide an opportunity to secure euros at a more favourable rate. Conversely, businesses receiving euros may find that converting those funds into sterling generates less income than it would have earlier in the year.

What This Means for Your Business

Currency markets remain sensitive to interest rate expectations, political developments and government borrowing costs. The dollar is benefiting from persistent US inflation pressures, the euro faces continued fiscal uncertainty, and sterling is showing mixed performance depending on the currency involved.

For businesses making international payments, even relatively small exchange rate movements can have a meaningful impact on margins, cash flow and purchasing costs. Understanding upcoming payment requirements and monitoring market developments can help businesses make more informed currency decisions.

At Frank eXchange Limited, we provide transparent exchange rates and straightforward international payment services, helping businesses understand the rate they are offered before confirming a transaction.

For support with your upcoming currency requirements, contact our team at FX-Admin@frank-exchange.com or call 07441 910 897.

6th October 2026

How We Can Help...

Our team are here to help you get more from your money when making international payments. We will work with you to understand your payment needs and offer guidance on the best options available to you.

Get in Touch!

P: 07441 910 897

E: FX-Admin@frank-exchange.com

This document has been prepared solely for information and is not intended as an Inducement concerning the purchase or sale of any financial instrument. By its nature market analysis represents the personal view of the author and no warranty can be, or is, offered as to the accuracy of any such analysis, or that predictions provided in any such analysis will prove to be correct. Should you rely on any analysis, information, or report provided as part of the Service it does so entirely at its own risk, and Frank eXchange Limited accepts no responsibility or liability for any loss or damage you may suffer as a result.  Information and opinions have been obtained from sources believed to be reliable, but no representation is made as to their accuracy. No copy of this document can be taken without prior written permission.