GBP, EUR & USD Outlook: The Week That Sets October FX Markets

Key Highlight

• The US dollar finished last week with its strongest two-week performance in six months. Although it pulled back on Friday, the move appeared to reflect profit taking following stronger than expected US consumer sentiment rather than a broader change in direction.
• Dollar sentiment has also strengthened among financial institutions and investors. Morgan Stanley has reversed its previous expectation for a weaker dollar and now anticipates further strength through the end of the year. Options positioning also shows the strongest expectations for dollar gains since April.
• This week could provide a significant test of that momentum. US Core PCE and UK GDP are due on Wednesday, followed by eurozone inflation and US payrolls on Friday. These releases could influence expectations for the Federal Reserve and European Central Bank's October decisions.

Market Recap

Sterling made modest gains against the dollar on Friday and also finished the day ahead of the euro.

The Japanese yen recorded its strongest daily performance since 7 September, gaining as much as 1.2%. Japanese Prime Minister Takaichi described the weak yen as "problematic" during discussions with President Trump, who also expressed concerns about the currency.

Oil markets remained sensitive to developments surrounding the Strait of Hormuz. Brent crude initially fell below $106 following reports that the US and Iran were considering a phased agreement to reopen the route. However, President Trump subsequently rejected Iran's latest proposal, sending Brent back towards $106.

The renewed uncertainty pushed US two-year Treasury yields 5 basis points higher to 4.90% and provided additional support for the dollar as investors sought safer assets.

JPMorgan has also highlighted sterling and the euro as two developed market currencies particularly exposed to any US restrictions on diesel exports, given the reliance of both economies on imported fuel.

Market Overview

The dollar's Friday pullback has so far looked more like profit taking than a reversal. The renewed uncertainty around the Strait of Hormuz has pushed oil and short term US yields higher again, providing further support for the dollar.

Attention now turns to the economic data. A stronger than expected Core PCE reading on Wednesday, combined with robust US payrolls on Friday, could reinforce expectations for an October Federal Reserve rate hike, which is currently around 65% priced by markets. Softer data would provide some relief for sterling and the euro following the dollar's recent gains.

Political developments could also become increasingly important. President Trump's comments regarding the weak yen, alongside reports that Treasury Secretary Bessent has discussed the potential benefits of a stronger yen, suggest that the US administration may be increasingly conscious of the implications of a stronger dollar.

Friday is likely to be particularly important, with eurozone inflation released on the same morning as US payrolls. The combination of these figures could lead to significant repricing of expectations for both the ECB and Federal Reserve.

For sterling, Wednesday's UK GDP revision will be closely watched. The Bank of England is moving towards a possible November rate hike, although this has so far provided limited support for the pound.

Euro vs Dollar

The euro remains under pressure as the US economy continues to show stronger momentum. Recent business activity data showed US activity at 58.4 compared with 53.1 across the eurozone, while expectations of further Federal Reserve rate increases continue to support the dollar.

The euro received little benefit from Friday's dollar pullback, leaving Friday's eurozone inflation figures as an important opportunity for the currency to regain some ground.

The US maintains a rate advantage of around 146 basis points, while markets currently expect the ECB deposit rate to reach approximately 3.25% by the end of 2027. Even another ECB hike on 29 October would only narrow this difference slightly.

Higher oil prices are another consideration, with Brent above $100 leaving Europe more exposed to the impact of higher energy costs.

What this means for you: A move towards resistance could mean approximately $1,575 more received by a dollar buyer on a €250,000 transaction. A move towards support could mean approximately $1,550 less. The impact would be reversed for dollar sellers.

Pound vs Dollar

Sterling remains vulnerable against the dollar despite the relatively small interest rate difference between the UK and US.

UK business activity was weaker than both the US and eurozone, with the UK PMI at 51.7 compared with 58.4 in the US and 53.1 in the eurozone. Positioning also remains cautious towards sterling.

The pound's Friday recovery was largely driven by dollar profit taking rather than a clear improvement in sterling fundamentals, and some of those gains were subsequently reversed.

Wednesday's GDP revision and Friday's US payroll figures will therefore be particularly important for the pair.

Looking further ahead, the UK and US rate differential is around 17 basis points, while markets expect the Bank of England to make slightly more rate increases than the Federal Reserve by March. This limits the extent of the interest rate disadvantage for sterling.

However, stronger US growth, the pace of Federal Reserve tightening and the UK's 28 October Budget remain important risks.

What this means for you: If the pair moves towards resistance, a dollar buyer could receive approximately $1,375 more on a £250,000 transaction. If it moves towards support, the same transaction could result in approximately $3,625 less. The reverse applies for dollar sellers.

Pound vs Euro

Sterling edged higher against the euro on Friday, although the underlying growth picture continues to favour the eurozone.

Eurozone PMI reached a three year high, while the UK's 51.7 reading represented a three month low. Market positioning also remains cautious towards sterling.

The Bank of England provides some support for the pound, with two deputy governors moving closer towards a possible November rate increase. UK consumer confidence has also performed better than expected.

Over the medium term, the outlook is more balanced. Sterling currently holds an interest rate advantage of around 129 basis points, while markets expect the BoE to raise rates slightly more than the ECB. However, stronger eurozone growth provides an opposing force.

The UK Budget on 28 October and ECB meeting on 29 October could therefore create increased volatility for this currency pair within a short period.

What this means for you: If the pair moves towards resistance, an euro buyer could receive approximately €1,725 more on a £250,000 transaction. A move towards support could result in approximately €1,275 less. The reverse applies for euro sellers.

Bottom Line

The week starts relatively quietly, but the economic calendar becomes significantly more important from Wednesday onwards.

For businesses and individuals with dollar or euro payments due in October, the key consideration is whether to secure an exchange rate ahead of the major economic releases or remain exposed to potential movements following the data.

With US Core PCE, UK GDP, eurozone inflation and US payrolls all due this week, there is potential for increased volatility across GBP, EUR and USD.

28th September 2026

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