While tech stocks had their worst week since the Liberation Day sell-off in April, currency markets largely took the AI mini-crash in stride.
G10 currencies remained in tight ranges, while some emerging market currencies posted modest gains. Amid this calmness, sterling weathered the Bank of England's dovish turn well, posting modest gains against the dollar. The week's loser was the New Zealand dollar, which fell following some disappointing labour market data. As this is written, hopes for a resolution to the US Federal shutdown impasse are rising. This would restart the release of economic data and shed much-needed light on the state of the US economy.
This week will be a busy one in the UK, with Wednesday’s labour market data to be followed by third-quarter GDP and September industrial production on Thursday. Little is expected to happen in the Eurozone. Whether we receive any market-moving news about the US economy will, of course, depend on an agreement to end the shutdown. We will also be following developments in the stock market, as wealth effects and the impact of AI investment have probably been a net support for the US dollar.
GBP
The Bank of England kept rates unchanged last week, albeit only just, as four of the nine MPC members dissented in favour of an immediate cut, more than had been expected. The communications also seemingly paved the way for further easing, with the statement warning over weaker growth and labour market slack, and noting that inflation is judged to have peaked. While this all seems to point to a cut at the next meeting in December, the stark divisions between the hawks and the doves means that this is not a nailed on certainty, with governor Bailey of all people seemingly holding the casting vote.
Sterling bore the dovish surprise rather well, rebounding after a short post-meeting downdrift. While we wait for the key 26th November budget release, this week's economic data will be key, given the apparent data dependence of the MPC. The employment report on Tuesday and the flash GDP release on Wednesday will be of great significance. Any positive surprise in either could force markets to reprice the chances of a December cut, which currently stands at around 70%.
EUR
The euro edged back up towards the 1.16 level on the US dollar towards the end of last week, although it was a week devoid of any real major domestic news, aside from some slightly disappointing September retail sales figures. The only notable news from the Eurozone this week will be the release of the first revision to the third-quarter GDP numbers. We look to the data to confirm the modest improvement in the tone of economic news lately, which has been plainly evident in the PMI figures of business activity.
With the European Central Bank set to hold interest rates for the foreseeable future, we continue to wait for signs that Germany’s massive fiscal stimulus package, announced earlier in the year, is starting to show up in the leading economic indicators. This may be the catalyst needed for another leg up in the euro versus the dollar.
USD
The limited privately or state-sourced data that we are still getting from the US suggests that job creation remains anemic, but layoffs remain at very low levels. Last week's Challenger layoff report seemed to show a spike in firings, but we would heavily discount this particular data point, as it has not been a reliable indicator in the past.
While the US economy appears relatively undamaged by the shutdown, we have not yet received sufficient enough data to confirm this thesis. We have also long contested that this could quickly begin to change should the closure drag on for any significant amount of time. Air travel cancellations and chaos this week may be the first sign of lasting damage. We do, however, expect the additional political pressure from this and other impacts to bring about an agreement that will restore the normal flow of data and economic reports soon.
Deep dives and expert insights:
- G10 currency market report - Get the latest analysis on major currencies.
- FX Monthly - November 2025
- Latin America FX Outlook - October 2025
