UK and Eurozone PMIs Diverge While Sterling Hits 17-Month High Against Euro

Sterling reached a fresh 17-month high against the euro on Friday amid stronger UK business activity and slower eurozone growth. The UK's preliminary October Composite Purchasing Managers' Index (PMI) rose to 53.1 from 52.0 in September, exceeding expectations of 51.8. In contrast, the eurozone reading declined to 51.9 from 53.1, below forecasts of 52.7, as French business activity contracted. EUR/GBP fell towards 0.8362, although Sterling slipped against the US dollar to around 1.3381.

Meanwhile, UK retail sales declined 0.4% in September, highlighting weaker consumer spending despite stronger business surveys. The contrasting figures presented mixed signals about the UK economy ahead of Wednesday's UK Budget, while expectations of a November Bank of England (BoE) interest-rate increase may have provided some support for sterling.

France avoided a sovereign credit-rating downgrade on Friday after Moody's maintained its Aa3 rating with a negative outlook. In the United States, October's Composite PMI eased to 57.6 from 58.4, although the output prices index reached 59.8, indicating persistent inflation pressures ahead of the Federal Reserve's (Fed) policy decision.

During early Monday trading, Brent crude retreated towards $114.50 amid diplomatic developments and expectations that Middle East tensions might ease. Major currencies traded within narrow ranges ahead of Germany's Ifo Business Climate Index and upcoming central-bank decisions.

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GBP: Sterling Holds Euro Gains Despite Weak Retail Sales

GBP/USD: 1.3375 | EUR/GBP: 0.8386

Sterling remained relatively steady against the US dollar during early Monday trading, with GBP/USD near 1.3375 after ending Friday around 1.3381. Against the euro, Sterling retained much of its recent strength, although EUR/GBP recovered towards 0.8386 after touching a 17-month low of approximately 0.8362 on Friday. The contrasting movements indicated that Sterling's recent outperformance remained more pronounced against the euro than the dollar.

Friday's UK business surveys revealed improvements across both manufacturing and services. The Manufacturing Purchasing Managers' Index (PMI) increased to 52.8 from 51.9, while the Services PMI reached 53.1 from 52.1. Businesses also reported renewed hiring, although input-cost inflation accelerated to its highest level since June. Meanwhile, retail sales excluding fuel declined 0.7% in September, suggesting some weakness in retail spending despite stronger business activity.

Interest-rate markets continued to anticipate a 25-basis-point Bank of England (BoE) increase on 5 November, with the probability estimated at approximately 95%. However, weaker consumer spending and elevated business costs presented competing risks to the economic outlook. Wednesday's UK Budget could influence Sterling through changes in fiscal expectations, while the Federal Reserve's policy decision may also affect GBP/USD.

Key technical reference levels for GBP/USD: Resistance sits near 1.3403, followed by 1.3466, while support sits around 1.3341, followed by 1.3263.

Key technical reference levels for EUR/GBP: Resistance sits near 0.8400, followed by 0.8430, while support sits around 0.8362, followed by 0.8355.

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EUR: Euro Recovers Modestly Amid Slower Eurozone Business Activity

EUR/USD: 1.1218

The euro recovered modestly against the US dollar during early Monday trading, with EUR/USD rising towards 1.1218 after slipping below 1.1200 on Friday. The recovery coincided with declining US Treasury yields and broader dollar weakness, although it remained limited amid weaker eurozone economic data and continued French fiscal concerns.

October's preliminary eurozone Purchasing Managers' Index (PMI) figures suggested slower growth in both manufacturing and services. The Manufacturing PMI declined to 52.4 from 52.9, while the Services PMI fell to 51.7 from 53.0. France's Composite PMI dropped to 48.4, indicating renewed contraction, while Germany's reading eased to 52.8. Across the eurozone, new orders expanded at their slowest pace in four months, employment growth nearly stalled and rising energy costs increased pressure on businesses.

Meanwhile, Moody's maintained France's Aa3 credit rating rather than downgrading it in its latest review, while retaining a negative outlook amid continued uncertainty over fiscal reforms. Interest-rate markets anticipated unchanged European Central Bank (ECB) rates at Thursday's meeting, with a potential increase in December remaining under consideration. Monday's German Ifo Business Climate Index could provide further evidence of economic conditions ahead of the policy decision.

Key technical reference levels for EUR/USD: Resistance sits near 1.1270, followed by 1.1315, while support sits around 1.1185, followed by 1.1138.

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USD: Dollar Steadies as US Price Pressures Persist

DXY: 101.65

The US dollar traded within a narrow range during early Monday trading, with the US Dollar Index (DXY) holding near 101.65 as investors prepared for Wednesday's Federal Reserve (Fed) interest-rate decision. The benchmark 10-year US Treasury yield eased towards 4.97%, while declining oil prices may have eased some near-term inflation concerns. However, persistent underlying price pressures and expectations of further monetary tightening may have limited further dollar weakness.

Friday's US business surveys revealed continued strength in domestic demand despite moderating overall activity. The S&P Global Manufacturing Purchasing Managers' Index (PMI) increased to 56.0, while the Services PMI eased to 57.9. New orders climbed to 58.2, their highest since March 2022, while input costs remained elevated at 64.9. Supply-chain disruptions also intensified, suggesting that businesses could face continued pressure on operating costs and selling prices.

Interest-rate markets largely anticipated unchanged Fed rates at its 28 October meeting, although CME FedWatch pricing indicated approximately a 77% probability of a December increase. The contrast between resilient business demand and persistent inflation pressures could influence the Fed's assessment of future policy requirements. Tuesday's US Durable Goods Orders and Consumer Confidence figures, followed by Thursday's Personal Consumption Expenditures (PCE) inflation report, could provide further direction for the dollar.

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Other Currencies: Canadian Dollar Reaches Five-Week High While AUD & NZD Stabilise

AUD/USD: 0.7031 | NZD/USD: 0.5701 | USD/JPY: 156.92 | GBP/JPY: 209.94

The Canadian dollar strengthened to a five-week high against the US dollar on Friday, with USD/CAD declining to 1.3969 before stabilising around 1.4000. Canada's August retail sales increased 1.2% month-on-month, slightly below the 1.3% forecast but reversing July's decline. Sales excluding motor vehicles also rose 1.2%, exceeding expectations of 1.0%. The figures were released amid elevated oil prices and market expectations of a Bank of Canada (BoC) interest-rate increase on 28 October. A Reuters survey found that 19 of 34 economists anticipated a 25-basis-point increase to 2.50%, while interest-rate markets indicated approximately a 75% probability of tightening.

Meanwhile, the Australian dollar traded near 0.7031 during early Monday trading, remaining close to a one-month high. Expectations of further Reserve Bank of Australia (RBA) tightening may have provided some support, although the currency's advance remained limited amid uncertainty surrounding global economic conditions. Investors now await Wednesday's quarterly Australian Consumer Price Index (CPI) figures, which could influence expectations ahead of the RBA's November meeting.

The New Zealand dollar edged approximately 0.05% higher to 0.5701 against the US dollar during Monday's Asian session. Interest-rate markets continued to anticipate a 25-basis-point increase by the Reserve Bank of New Zealand (RBNZ) on Wednesday, potentially taking the Official Cash Rate to 3.00%. Persistent underlying inflation remained a consideration for policymakers, although expectations of further US monetary tightening could limit the currency's recovery.

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Current Rate Table

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Market Lookahead

Monday, Oct 26

• EUR - Germany Ifo Business Climate (Oct)

Tuesday, Oct 27

• USD - Durable Goods Orders (Sep)
• USD - Conference Board Consumer Confidence (Oct)

Wednesday, Oct 28

• GBP - UK Budget 2026
• CAD - BoC Interest Rate Decision
• USD - Fed Interest Rate Decision

Thursday, Oct 29

• USD - GDP (Q3)
• EUR - ECB Interest Rate Decision
• USD - Initial Jobless Claims

Friday, Oct 30

• JPY - BoJ Interest Rate Decision
• EUR - Eurozone GDP (Q3)
• USD - PCE Price Index & Core PCE Price Index (Sep)

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