Sterling set for third weekly rise against euro, hits 3-week high vs dollar

Sterling Extends Weekly Gains Against Euro, Hits New High vs US Dollar

Market Overview and Key Drivers

By Stefano Rebaudo

Sterling's Performance Against Major Currencies

Oct 16 (Reuters) - Sterling was on track for a third consecutive weekly gain against the euro as the single currency remained under pressure following the French bond selloff at the turn of the month, with investors closely watching UK economic data and the fiscal trajectory.

The pound hit its highest level against the dollar in more than three weeks on Friday and was set to snap a four-week losing streak.

UK Economic Data and AI Impact

Britain's economy beat forecasts in August as a further jump in the computer programming sector offered fresh evidence that AI is boosting growth. 

Bank of England and Fiscal Policy Implications

“The economy’s resilience gives the Bank of England room to raise rates without running the risk of putting additional pressure on an already weakening economy,” Thu Lan Nguyen, head of forex and commodity research at Commerzbank, said.

“It also takes some pressure off the Chancellor, who remains committed to reducing the budget deficit,” she added.

British finance minister John Healey said his first budget to be delivered on October 29 would include measures to offer "a bit of breathing space" to the country. 

Euro Weakness and Market Confidence

The euro recently touched its lowest level of the year against the pound, suggesting markets are confident the UK government can strike a balance between maintaining fiscal discipline and supporting growth. Still, recent experience suggests investors should not underestimate the residual risks surrounding the UK's fiscal plans.

The single currency was on track for a 0.24% weekly fall versus the pound and was last down 0.12% at 84.41 pence on Friday.. It reached 84.28 pence on Wednesday, its lowest since June 2025.

Sterling's Rise Against the Dollar

Sterling was set for a weekly rise of 0.66% against the dollar and was last up 0.40% at $1.3329, its highest level since September 23.

Investor Focus and Central Bank Outlook

Investors remained focused on the Bank of England's rate path amid concerns that rising yields could hurt economic growth and put further pressure on public finances. Markets expect the BoE to raise rates by 25 basis points at its next meeting on November 5, according to LSEG data.

BoE Governor Andrew Bailey said on Friday soaring energy prices so far appear to be having limited wider effects on British prices, but it is too soon to draw firm conclusions about how strong such second-round effects will be. 

(reporting by Stefano Rebaudo; editing by Xevi Fontdegloria)