GBP, EUR & USD Currency Outlook: Sterling Under Pressure as Oil and Bond Yields Rise

Key Highlight

• Markets have been driven by a combination of higher bond yields, rising oil prices and renewed geopolitical risk, putting pressure on sterling and the euro against the US dollar.

• Sterling has fallen for four consecutive sessions, reaching its weakest level against the dollar in around three months. Positioning in options markets is also the most negative on the pound in three months.

• US 30 year Treasury yields briefly reached 5.44%, their highest level in more than two decades, while Brent crude climbed to $107 as tensions surrounding Iran and the Strait of Hormuz increased.

• The Bank of England is becoming more hawkish, with deputy governors Lombardelli and Breeden signalling that they are moving closer towards another rate increase. Markets now see an 87% probability of a November hike, although this has so far provided limited support for sterling against the dollar.

Market Recap

Central bank expectations remained a major focus. Fed officials Paulson and Hammack indicated that inflation risks remain elevated, with further tightening potentially required. Markets are currently pricing a 65% chance of another Fed hike in October.

In Europe, an October ECB rate increase is reportedly being considered, while ECB policymaker Schnabel warned that the energy shock has been more persistent than previously expected.

Elsewhere, Norges Bank raised rates by 25 basis points to 4.50% and signalled that further tightening could follow. The Riksbank kept rates unchanged but indicated a greater possibility of a hike later this year. The Swiss National Bank also held rates at 0%, while softer language around currency intervention weighed on the franc.

There was some relief overnight. Reports that the US and Iran are exploring a phased agreement to reopen the Strait of Hormuz helped push oil prices lower. The bond selloff also stabilised, with the US 10 year Treasury yield easing to around 5.19%.

The Japanese yen strengthened after Japan's Finance Minister said President Trump had raised concerns about yen weakness, while Goldman Sachs significantly reduced its dollar yen forecast.

Market Overview

The recent dollar strength has not been driven by the Federal Reserve alone. Rising Treasury yields and higher oil prices have created additional support for the dollar, while weighing on sterling and the euro.

The overnight improvement in oil prices and stabilisation in bond yields could provide some breathing room for risk assets and currencies. US durable goods data and the University of Michigan's inflation expectations will now be important in determining whether Treasury yields resume their upward move.

Euro vs Dollar

The euro remains under pressure, with US economic activity significantly stronger than in the eurozone. The latest composite PMI readings stand at 58.4 in the US compared with 53.1 in the eurozone.

US yields at multi year highs continue to widen the interest rate gap, while markets remain positioned for further euro weakness.

The eurozone is also more exposed to higher energy prices, particularly with Brent still above $100, although the recent pullback in oil could ease some of that pressure.

For businesses buying dollars, a move towards resistance could mean approximately $3,175 more per €250,000. A move towards support could mean around $1,200 less.

Pound vs Dollar

Sterling remains under pressure despite increasingly hawkish signals from the Bank of England. UK business activity remains weaker than both the US and eurozone, with the latest UK composite PMI at 51.7.

The pound has now fallen for four consecutive days, while positioning against sterling has reached its most negative level in three months.

Markets are pricing an 87% probability of a November BoE rate hike, but the UK's weaker growth outlook and stronger US economic performance continue to limit the benefit to sterling.

For businesses buying dollars, a move towards resistance could provide approximately $2,125 more per £250,000, while a move towards support could mean around $1,875 less.

Pound vs Euro

The pound has a more balanced outlook against the euro. Eurozone business activity has strengthened, with the composite PMI reaching a three year high of 53.1, compared with 51.7 in the UK.

However, sterling continues to benefit from a significant interest rate advantage. The UK currently has around a 125 basis point rate advantage over the eurozone, while markets expect the BoE to tighten slightly more than the ECB.

UK consumer confidence also came in better than expected at -13, providing some support for sterling.

The key events to watch are the UK's 28 October Budget and the ECB meeting on 29 October, making the end of October particularly important for this currency pair.

For businesses buying euros, a move towards resistance could mean approximately €1,325 more per £250,000, while a move towards support could mean around €1,100 less.

What This Means for Businesses

The latest currency moves have been influenced as much by bond yields and oil prices as by central bank policy. The overnight stabilisation in both areas offers a potential pause after several days of dollar strength, but the underlying risks remain.

For businesses with upcoming international payments, the recent weakness in sterling means it may be worth reviewing existing currency requirements rather than relying entirely on a reversal in the market.

As always, the appropriate approach depends on the timing and certainty of your payment, particularly with significant UK, US and European economic events approaching.

25th September 2026

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