Weekly FX Roundup: Pound Holds Firm, Dollar Buyers Find Value

Global markets turned defensive this week as renewed pressure on U.S. regional banks reignited concerns over credit quality and financial stability. This builds on the cautious sentiment we highlighted in our G10 currency roundup earlier this week, where safe-haven flows were already beginning to dominate across major pairs. Equity markets fell sharply, prompting a broad move into safe-haven currencies such as the yen and Swiss franc. Against this backdrop, the Bank of England maintained a measured tone, balancing inflation concerns with cautious optimism. Sterling remains broadly supported by the expectation that the BoE will move more slowly on rate cuts than its peers, though risk-off sentiment has kept gains in check. 

Safe-haven demand has risen sharply as investors shift away from risk assets amid growing uncertainty.
Reports of loan fraud and losses at smaller U.S. regional banks have revived fears of deeper issues in credit markets, while weaker economic indicators and an ongoing U.S. government shutdown have clouded visibility on the real economy. Escalating U.S.- China trade tensions and diverging central bank policies have reinforced a cautious tone, leading investors to seek safety in assets such as the yen, Swiss franc, gold, and U.S. Treasuries. 

 

The Bank of England struck a measured tone this week. Chief Economist Huw Pill said rate cuts are still expected over the coming year but emphasised the need for patience, warning that inflationary pressures remain stubborn. Fellow policymaker Megan Greene echoed this view, highlighting the UK’s vulnerability to new supply shocks and the risk that persistent uncertainty could weigh on business investment. 

Sterling softened slightly as investors favoured safe-haven assets amid renewed U.S. economic and trade concerns. However, the pound remains underpinned by the view that the BoE will ease policy more cautiously than other central banks, helping it retain a degree of relative strength. 
 

Sterling remains under pressure against the euro as heightened risk aversion continues to dominate sentiment. Fresh concerns about the health of smaller U.S. banks triggered a broad equity selloff, and sterling typically underperforms when investors retreat from risk. The pound’s recent attempts to break higher met firm resistance, suggesting that the broader downward trend in GBP/EUR remains intact for now. 

The euro found some support from political stability in France after Prime Minister Lecornu survived two no-confidence votes, easing short-term political risk. With that uncertainty reduced, the euro has been able to recover modestly, while sterling continues to trade largely in line with global sentiment rather than domestic factors. 
 

The pound eased slightly against the dollar as broader market caution outweighed any change in the UK outlook. Fears of stress in U.S. credit markets following reports of loan fraud at regional banks dampened risk appetite and boosted demand for defensive assets. 

Even so, the balance between the BoE’s measured stance and expectations of more aggressive Fed rate cuts continues to limit sterling’s downside. Unless risk sentiment deteriorates further, GBP/USD is likely to remain rangebound in the near term, with movement driven more by global events than UK fundamentals. 
 

The euro gained ground as the dollar weakened in response to renewed concerns over the U.S. banking sector and increasing speculation that the Federal Reserve will deliver additional rate cuts. Remarks from Chair Powell suggesting the Fed still has scope to lower rates without reigniting inflation were interpreted as dovish, adding further pressure to the greenback. 

Stabilising political conditions in France also lent support to the euro. With the dollar under pressure and risk sentiment uneven, EUR/USD momentum remains tilted to the upside, and traders are watching for confirmation that the pair can sustain higher levels if the Fed maintains its softer tone. 
 

The Canadian dollar edged higher this week alongside general U.S. dollar weakness, although its gains were capped by softer oil prices and growing expectations that the Bank of Canada could cut rates again in the months ahead. Upcoming Canadian inflation data will be key in determining the BOC’s next move. 

If inflation slows more than expected, markets may price in a deeper easing path, which could renew pressure on the loonie. For now, USD/CAD is tracking U.S. yield movements and overall market sentiment, leaving the pair stable but sensitive to shifts in global risk appetite. 
 

Next week’s focus will turn to Canada’s September inflation figures and fresh commentary from Bank of England policymakers ahead of the November budget. In the U.S., traders will watch for updates on the government shutdown and any signals from the Fed on the pace of future cuts. Market sentiment is likely to remain fragile, keeping safe-haven demand elevated and trading ranges tight across major currency pairs.