GBP/USD, EUR/USD & GBP/EUR: What Markets Are Watching Now | Frank eXchange

Key Highlight

• The US dollar lost some ground across major currencies, allowing Sterling to reach its strongest level against the dollar in almost a week.

• The euro found some stability after Marine Le Pen pledged to bring France’s budget deficit below 3% of GDP, temporarily easing concerns around French fiscal policy.

• UK construction activity improved to 46.1 in September, its highest level in eight months, although a reading below 50 still indicates contraction.

• Eurozone retail sales increased by just 0.1% in August, below the 0.2% expected, with higher fuel costs weighing on consumer spending.

• The US trade deficit widened to $105.6 billion, its largest since March 2025, driven partly by stronger imports of oil and AI related equipment.

• The Bank of Japan offered little indication of an imminent rate increase, keeping pressure on the yen.

• US borrowing costs remain elevated, with Treasury yields close to their highest levels since 2002.

Market Recap

The dollar's recent strength paused yesterday, giving both sterling and the euro some room to recover. However, the underlying backdrop remains supportive of the US currency, particularly while American borrowing costs remain high.

In the UK, construction activity improved more than expected, rising to 46.1 compared with forecasts of 44.9. While this is encouraging, the sector remains in contraction territory and highlights the continued challenges facing the UK economy.

The eurozone also produced a softer consumer spending picture. Retail sales rose only 0.1% in August, falling short of the 0.2% forecast as higher fuel prices continued to affect household spending.

In the US, the trade deficit increased sharply to $105.6 billion. The rise reflected stronger imports, including oil and equipment linked to artificial intelligence investment.

Market Overview

The main focus for currency markets today is the release of the Federal Reserve's September meeting minutes. After the dollar's strong recent performance, investors are looking for clues over how united policymakers remain on the future path of interest rates.

A firm message supporting further rate increases could give the dollar another boost. On the other hand, evidence of disagreement or greater caution among policymakers could allow the recent dollar rally to pause for longer.

The euro has received some temporary support from developments in France. Marine Le Pen's commitment to bringing the country's deficit below 3% of GDP has helped reduce some political pressure on French assets. However, this remains a political pledge rather than a confirmed fiscal plan, so the improvement should be viewed cautiously.

Sterling is currently benefiting from weakness in the dollar and continued expectations of higher UK interest rates. However, domestic risks remain, particularly ahead of the UK Budget on 28 October.

Euro vs Dollar

Near term: 60% conviction, downside risk

The euro has stabilised following its recent decline, helped by reduced political pressure in France. However, traders remain positioned for further euro weakness and the dollar still has a significant interest rate advantage of around 145 basis points.

A recovery is possible after such a sharp move lower, which is why conviction remains at 60% rather than higher.

Medium term: 70% conviction, continued weakness

The wider outlook remains challenging for the euro. Caution from the European Central Bank and ongoing concerns surrounding French public finances could limit the scope for further European rate increases.

Unless France produces a credible and sustainable budget agreement, the interest rate advantage remains tilted towards the dollar.

What this means for you: If the exchange rate moves towards resistance, a dollar buyer exchanging €250,000 would receive approximately $4,125 more. If the rate moves towards support, they would receive approximately $875 less. The opposite would apply to dollar sellers.

Pound vs Dollar

Near term: 70% conviction, downside risk

Sterling benefited from yesterday's softer dollar, reaching its strongest level against the US currency in almost a week. However, some of those gains were reversed as US yields moved higher.

The key short term event is the Federal Reserve minutes. A hawkish message could renew demand for the dollar, while a more cautious tone could provide sterling with further breathing room.

Medium term: 60% conviction, further downside risk

Neither the UK nor the US currently has a clear interest rate advantage, with markets expecting broadly similar increases from both central banks over the coming year.

That leaves economic growth and fiscal policy as important drivers. UK growth remains a concern, while the 28 October Budget represents an additional source of uncertainty for sterling.

What this means for you: If the exchange rate reaches resistance, a dollar buyer exchanging £250,000 would receive approximately $4,950 more. If it moves towards support, they would receive approximately $1,250 less. The reverse applies to dollar sellers.

Pound vs Euro

Near term: 70% conviction, higher

Sterling remains close to its strongest level against the euro this year. Expectations that the Bank of England could raise interest rates three times by April have continued to support the pound.

However, the speed of the recent move means a period of consolidation would not be surprising. Any credible progress towards a French budget agreement could also reduce support for sterling.

Medium term: 60% conviction, modest upside risk

Sterling's interest rate advantage of around 147 basis points provides a supportive backdrop over the next six months.

However, the exchange rate is already close to its yearly high, making a temporary pullback possible before any further gains.

The UK's 28 October Budget and developments in France remain the main risks to this outlook.

What this means for you: If the exchange rate falls towards support, a euro buyer exchanging £250,000 would receive approximately €2,325 less. With the pair already close to its yearly high, there is currently no reliable upside target. The reverse applies to euro sellers.

7th October 2026

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