Sterling at new 2025 low versus euro

Sterling lost ground against both the euro and the dollar during yesterday’s session, which seemed to be related to an FT report suggesting the Chancellor of the Exchequer is facing a larger than expected ‘black hole’ in the UK public finances ahead of her budget next month. The pound is trading at a new 2025 low of £0.88 against the single currency this morning, and is down more than a cent against the dollar from yesterday morning at $1.3220. EURUSD is off yesterday’s best levels (of circa $1.1670) ahead of the Fed’s interest rate decision later today, trading at about $1.1630.

UK government borrowing costs were unaffected by the FT report with 10-year bond yields ending marginally lower on the day, while German and UK yields were little changed overall. In equity markets, the main US indices advanced again, led by the Nasdaq which gained around 0.8%, while European stocks were flat. Today sees the start of earnings results from some of the Big Tech companies.

Consumer confidence in the US fell for a third month in a row in October according to the Conference Board’s latest survey.  Consumers’ assessment of current business and labour market conditions improved slightly this month, but the expectations index – based on consumers’ short-term outlook for income, business, and labour market conditions – fell again.

The ECB’s latest bank lending survey (BLS) reports “a small unexpected net tightening of credit standards for loans or credit lines to firms in the third quarter of 2025”, with “perceived risks to the industry or firm-specific situation” as well as “perceived risks to the economic outlook” contributed to tighter credit standards. The “current high level of geopolitical uncertainty and risks connected to trade” were cited as reasons for discriminating across sectors or firms when issuing new loans.

While the Fed is currently operating in something of a vacuum in setting monetary policy, given the US government shutdown-related absence of key economic data, it still looks set to cut interest rates again when it concludes its two-day monetary policy meeting later today. With employment growth (as best as can be gauged) remaining soft,  the impact of increased tariffs on inflation proving less pronounced than expected, and the stance of monetary policy still “moderately restrictive”, another 25bps reduction in the federal funds rate, to a range of 3.75%-4%, is on the cards. This is in line with current market pricing, which also envisages another quarter-point cut at the Fed’s final meeting of this year in December and a further 50-75bps reduction in 2026.