FX Market Update: GBP, EUR and USD Outlook as BoE and BoJ Decisions Move Currencies

Key Highlight

• The Bank of Japan raised interest rates by 25 basis points to 1.25%, but the 7 to 2 votes highlighted a lack of consensus among policymakers. The split decision reduced expectations of another near-term increase and the yen weakened to its lowest level in around two weeks. Governor Ueda’s comments will therefore be closely watched for any indication of the BoJ’s next steps.
• In the UK, the Bank of England left rates unchanged at 3.75%, with the 6 to 3 vote also revealing a divided committee. The decision to stop planned sales of long-dated government bonds added another layer of uncertainty, while sterling weakened and markets reduced expectations for further rate increases.
• The US dollar remains relatively firm following its recent gains. With no major US economic data overnight, attention has shifted towards trade policy, with new US tariffs on China and other trading partners reportedly delayed until after the upcoming Xi Trump summit. This has temporarily reduced some concerns around global trade tensions.
• Oil prices have continued to decline, with Brent crude falling below $104 and recording a third consecutive daily decline. Oil is now more than 3% lower over two days, helping to ease concerns around inflation and supporting broader risk appetite. However, lower energy prices could also reduce pressure on the BoE and ECB to consider further interest rate increases.

Market Recap

Markets remain focused on the contrasting signals from the major central banks.

The BoJ’s move to 1.25% was widely anticipated, but the 7 to 2 split weakened the impact of the decision on the yen. Attention now turns to Governor Ueda for clues about the timing and likelihood of further tightening.

The BoE maintained its rate at 3.75%, voting 6 to 3, while also ending plans to sell long dated gilts. Sterling moved lower following the decision, with markets reducing the amount of further tightening expected by year end to approximately 38 basis points.

The US dollar has remained supported after its broad gains following the Federal Reserve’s decision. The expected delay to new US tariffs until after the Xi Trump meeting has also helped reduce immediate trade concerns.

The euro has lacked direction, with political uncertainty surrounding France’s 2027 budget continuing to weigh on sentiment. Meanwhile, comments from an ECB policymaker suggested that current market expectations for interest rates are being heavily influenced by movements in energy prices.

Elsewhere, the continued decline in oil prices has improved market sentiment. Asian equities moved higher and US equity futures strengthened following the Nasdaq’s strongest session since early August.

Market Overview

Euro vs Dollar

The euro remains under pressure against the dollar, with the pair trading below its three major moving averages and close to a three-month low.

The widening interest rate differential in favour of the US dollar following the Federal Reserve’s recent decision continues to provide support for the dollar. At the same time, the ECB has given little indication of an aggressive tightening path.

French political and fiscal developments remain an important risk for the euro. Any further deterioration in the situation surrounding the 2027 budget could increase downward pressure on EUR/USD.

For businesses buying or selling dollars, relatively small movements can have a meaningful impact. A move towards resistance would change the cost of €250,000 by approximately $250, while a move towards support could change the cost by approximately $350 in the opposite direction.

Pound vs Dollar

Sterling has weakened by approximately 1% since the Federal Reserve meeting, with previous support now acting as resistance.

The BoE’s 6 to 3 decision to hold rates at 3.75%, combined with the reduction in market expectations for further rate increases, has kept pressure on the pound. The upcoming UK Budget and future BoE decisions will remain important for sterling.

For dollar buyers and sellers, movements in GBP/USD can quickly affect the cost of international payments. A move towards resistance would change the cost of $250,000 by approximately £400, while a move towards support could alter the cost by approximately £500 in the opposite direction.

Pound vs Euro

GBP/EUR is currently trading just below its 50-day moving average following the BoE’s mixed signals.

Sterling and the euro are both facing domestic challenges. While the BoE remains on hold, there is still some expectation of future tightening, while political uncertainty in France continues to create pressure on the euro.

This combination could keep GBP/EUR within its recent trading range, with developments in UK monetary policy and French politics likely to influence the direction of the pair.

For euro buyers and sellers, a move towards resistance would change the cost of €250,000 by approximately £500, while a move towards support could alter the cost by approximately £400 in the opposite direction.

What This Means for FX Markets

The latest central bank decisions have created a mixed picture across the major currencies. The BoJ raised rates to 1.25%, but the yen weakened, while the BoE held at 3.75% and sterling came under pressure. Meanwhile, the US dollar remains supported following the Federal Reserve’s recent decision.

Falling oil prices are helping to ease inflation concerns and improve wider market sentiment, but they may also reduce the pressure on the BoE and ECB to raise rates further.

For businesses and individuals making international payments, the combination of central bank policy, political developments and commodity prices means exchange rates can move quickly. Monitoring these developments and considering payment timing can therefore be important when planning larger currency transfers.

18th September  2026

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