Weekly Market Update: Oct 31 2025 - A Hawkish Twist Boosts Dollar

US: USD defies expectations

The US Federal Reserve delivered the widely expected 25-basis-point cut to the federal funds rate, taking it to the 3.75 to 4.00 % range but the key narrative was the tone. Fed Chair Jerome Powell emphasised that a December cut is not a done deal, highlighting internal divergence and stronger-than-expected labour data. As a result, USD regained some ground, long-end yields climbed and markets scaled back near-term easing expectations.

Implication: USD is likely to remain firm in the near term unless a major growth or inflation shock triggers renewed cutting expectations.

Eurozone: modest growth, steady policy

The European Central Bank held fire this week, with growth data showing only a 0.2 % quarterly rise in GDP for the euro-area, though slightly ahead of expectations (0.1 %). Annual growth is about 1.3 % but inflation remains tame at around 2.2% in the eurozone.

Implication: With policy unchanged and growth sluggish, EUR is caught in limbo, neither strong enough to push higher nor weak enough for aggressive easing.

UK: mild inflation, weak momentum

UK consumer prices (CPI) released last Wednesday were unchanged at 3.8 % year-on-year in September, slightly below the 4.0 % forecast, which set the tone for this week's trading. Meanwhile, fiscal and growth concerns linger, with the margin for policy relief shrinking and political headwinds restricting the government’s options. The latest furore around the Chancellor’s personal finances gave the market jitters, edging up gilt yields and moving public finances closer to the precipice.

Implication: GBP remains vulnerable as the Bank of England may delay cuts and the eurozone differential becomes a relative drag.

FX Snapshot & what to watch

• USD vs EUR: The hawkish Fed cut gave USD a leg-up whilst EURUSD drifted lower, trading around the mid-1.16s.
• GBP vs EUR: EURGBP climbed to around 0.8810, a two-year high, as sterling underperforms.
• GBP vs USD: With USD strength and GBP softness, GBPUSD remains under pressure, hovering near multi-month lows.

Watch list

Next week’s US jobless claims, any surprise inflation prints, and the BoE policy orientation.

Outlook

In the short term, USD strength may persist thanks to the Fed's optionality and yield support. EUR is likely to trade range-bound unless ECB surprises, and the GBP remains on the back foot until clearer signs of UK momentum emerge.

This update does not constitute investment advice. Past performance is not indicative of future results.