Here, we outline the major exchange rate forecasts on our three most traded currency pairs. Forecasts are submitted to Bloomberg Analytics by many large banking institutions, offering us a broad view on the prevailing market consensus. We have distilled the average, highest and lowest forecasts from the entirety of the submissions made to Bloomberg. However, we’ve highlighted the forecasts provided by 15 prominent financial institutions.
GBP – Fiscal Strains Keep Sterling Under Pressure
September proved volatile for the pound, with GBP/USD initially dropping two cents on renewed concerns over UK fiscal sustainability. Government bond yields surged to their highest levels in 27 years, highlighting investor unease.
The pair later rebounded four cents after weak US labour market data – including a mere 22,000 increase in non-farm payrolls and a record downward revision of 911,000 jobs for the year ending March 2025 – prompted the Fed to cut rates by 25bps. Markets now price in two more cuts by January and another two by the end of 2026, despite inflation remaining sticky at 2.7 per cent.
However, sterling’s gains were short-lived. GBP/USD fell back four cents as UK government borrowing surged and weak demand at the latest bond auction reignited fiscal worries.
EUR – Sterling Weakness Drives Modest Gains
GBP/EUR slipped around one cent over the month, weighed down by ongoing UK fiscal and growth concerns. UK GDP data showed zero growth in July, while both Manufacturing and Construction PMIs deepened their contraction.
Public borrowing rose to £18bn in August, taking the year-to-date total to £83.8bn – the second-highest on record for this period, surpassed only during the pandemic. Despite higher tax receipts, increased spending on welfare, public services, and debt interest continues to strain the UK’s fiscal outlook.
USD – Fed Eases as Labour Market Stumbles
The dollar saw mixed performance through September. Disappointing US employment data led the Fed to deliver a 25bps rate cut, marking the start of what could be a broader easing cycle. While inflation remains above target, policymakers appear focused on cushioning a slowing labour market.
Markets now expect further cuts through early 2026, with traders closely watching upcoming data to gauge the pace of Fed action.