Sterling Slides on Fiscal Worries as Dollar Holds Firm and Euro Stabilises.

• USD – Holding firm for now, supported by risk-sentiment shifts and anticipation of further upcoming policy signals.

• EUR – Fairly stable, but not yet showing strong upside momentum; remains vulnerable to external shocks and USD strength.

• GBP – Under significant pressure due to UK fiscal concerns and weaker fundamentals; requires a positive catalyst to change trajectory.

USD:

The US Federal Reserve pushed forward with an interest rate cut as inflation fears continue to take a backseat to concerns about a stalling labour market. With the Fed last month cutting rates for the first time since last December, many economists anticipated the move to jump start further reductions, but the data drought due to the government shutdown means that future cuts looks looks uncertain. The USD is benefiting from global risk-sentiment shifts and the relative attractiveness of U.S. yields

The prevailing view is that the dollar may hold firm in the near term unless a sharp deviation occurs. If the Fed signals delays in cuts or surprises hawkishly, the USD could strengthen further. f risk sentiment improves markedly, or U.S. data disappoints, the USD could pull back, which would provide relief for GBP and EUR.

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EUR: 

The euro has held up relatively well in comparison to the pound, partly because sterling is under greater pressure and partly due to a stabilising backdrop in the euro-zone. Nevertheless, the euro remains vulnerable given euro-zone growth and political risks. Technical analyses show EUR/USD forming a base near 1.1550-1.1600, with rebound potential if external conditions support it.

On the upside, the euro could gain if the USD softens and if euro-zone data surprises positively (e.g., inflation, PMI) or if the European Central Bank signals a more stable / less dovish tone. On the downside, the euro could struggle if growth data disappoints, political tensions flare (e.g., in France), or the USD gets a boost. A break below 1.1550 in EUR/USD would raise risk of further downside.

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GBP: 

Sterling continues to feel pressure amid heightened concerns over the UK’s fiscal stability. The Office for Budget Responsibility is reportedly set to cut its productivity growth forecast by 0.3%, potentially translating into a sizeable budget shortfall (£20 billion) which is feeding into risk sentiment. The currency is underperforming against both the dollar and euro. The weaker outlook is being compounded by elevated expectations that the Bank of England may move to cut rates sooner rather than hold steady given growth/inflation trends.

Without a positive catalyst (strong UK data, fiscal clarity, BoE surprise), sterling remains vulnerable. If global risk-aversion rises or the USD strengthens further, GBP may slip further. A favourable surprise such as stronger labour/wage data, or a credible UK fiscal plan – could stabilise GBP or provide some rebound.

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