Weekly FX Outlook: The Pound is range bound

Sterling’s push higher was never built to last. After briefly climbing above 1.15 against the euro, the pound headed back towards the crucial support level 1.1410 before drifting back into a familiar tight range, reflecting both euro stability and the return of fiscal reality. The move higher was driven by euro weakness during France’s political turmoil rather than any revival in UK strength. For our earlier analysis of sterling's temporary rise, see our previous weekly roundup. 

Now that France has regained composure and UK fundamentals are back in focus, sterling’s soft underbelly is showing. The British Chambers of Commerce’s latest survey paints a clear picture: business confidence is flat, inflation concerns are rising, and less than half of firms expect turnover growth next year. The message is consistent, the UK economy is stalling while fiscal pressures mount. 

Chancellor Rachel Reeves is reportedly preparing to raise taxes and cut spending in November’s Budget to rebuild fiscal “headroom” after an OBR productivity downgrade. While markets may welcome fiscal discipline, the cost will be slower growth and higher yields. Ten-year gilts are already near 4.7%, underscoring investor unease about rising debt costs. 

The OECD’s latest projections confirm the UK’s structural challenge: stubborn inflation, weak output, and little productivity growth. Policy choices from National Insurance hikes to above inflation public pay rises, have inflated costs and constrained flexibility. The Bank of England remains trapped between inflation that’s too high to cut and growth too weak to tighten further. That’s why every sterling rebound still fades. 

Sterling’s bounce against the dollar was short-lived. Friday’s move higher followed Trump’s tariff threats on China, which sparked a brief dollar selloff before both sides softened their tone. Over the weekend, Trump praised President Xi, and Chinese officials called for renewed dialogue, calming markets and steadying the dollar. The pairs direction in the short term hinges on Tuesday’s US CPI data. A strong inflation print could pull GBP/USD lower again. 

The downtrend has been gradual throughout 2025 and Support around 1.1410 remains crucial because a sustained break could open the path toward 1.13 and worse still if it breaks technical support levels we could see 1.11 by year-end. The euro, buoyed by political stability in France and steady German yields, has regained its footing as the region’s safe alternative. 

Markets are entering a packed week of key releases and speeches: 

Strategic View
Markets are watching how the government handles its finances.
Fiscal tightening might rebuild credibility over time, but in the short term it means slower growth, higher yields, and fragile confidence.
Sterling remains a currency under strain: it finds relief in others’ weakness but no real strength of its own. Until the UK delivers a credible path to growth, every rally will be worth taking advantage of. For strategies to lock in favourable exchange rates during volatile periods, see our comprehensive forward contracts guide.