Sterling and Euro Face Dollar Pressure Ahead of Fed and UK Budget
Sterling and euro trading remained sensitive to U.S. monetary policy expectations on Tuesday, October 27, 2026, as investors positioned ahead of the Federal Reserve’s decision. The upcoming UK Budget added uncertainty for the pound, while French fiscal concerns continued to influence the euro.
Sterling fell 0.19% to $1.3317, while the euro was quoted at $1.1143 in early trading. Stabilising sentiment towards artificial intelligence investments helped restore support for the dollar as attention returned to inflation, energy prices and central bank guidance.
Fed Expectations Shape Sterling and Euro Outlook
ING FX strategist Francesco Pesole attributed renewed dollar support partly to steadier AI-related sentiment, which allowed investors to refocus on a relatively hawkish Federal Reserve and elevated energy prices.
Fed Chair Kevin Warsh’s emphasis on controlling inflation reinforced expectations that policymakers would remain cautious about easing monetary conditions. Nevertheless, ING noted that market pricing for additional tightening had recently shown some fragility.
Investors were monitoring Tuesday’s U.S. consumer confidence, durable-goods orders, new-home sales and Richmond Fed manufacturing index. ING forecast a consumer confidence reading of 81.5, compared with a consensus estimate of 81.0 and September’s 81.9.
Weaker data or a less hawkish Fed message could weigh on the dollar and support sterling and euro exchange rates. A stronger commitment to further tightening could have the opposite effect, depending on existing market expectations.
UK Budget Adds Uncertainty for Sterling
The pound faced an additional test from Wednesday’s UK Budget. Investors expected Chancellor John Healey to deliver a relatively restrained statement, making changes to borrowing, spending and fiscal projections important potential drivers of sentiment.
Reports of approximately £20 billion in additional investment over five years had eased one potential concern. However, the currency response would depend on the final measures, their funding and their implications for growth and inflation.
Markets were also pricing in a 25-basis-point Bank of England rate increase to 4% in November. Budget measures that changed the inflation or growth outlook could prompt investors to reassess those expectations.
HSBC identified GBP/USD support at $1.3175 and resistance at $1.3461. LSEG consensus forecasts cited by HSBC placed the pair at $1.33 for the fourth quarter. These levels represented technical assessments and forecasts rather than assured outcomes.
French Fiscal Risks Remain Important for the Euro
France’s public finances remained a source of uncertainty. ING estimated that EUR/USD was approximately 1.0%–1.5% undervalued, largely reflecting French-related risks. This was the bank’s valuation assessment, rather than a confirmed measure of the currency’s fair value.
French government bond spreads were reported at around 153 basis points. ING considered a substantial further widening necessary to trigger another significant euro decline and did not, at that stage, expect EUR/USD to fall below the $1.110 level reached on October 14.
Investors were also awaiting Thursday’s European Central Bank meeting. ING expected unchanged rates and considered expectations of a substantial dovish shift unjustified. HSBC identified EUR/USD resistance at $1.1257, while LSEG consensus forecasts cited by the bank placed the pair at $1.14 for the fourth quarter.
Market Outlook: Policy and Fiscal Announcements May Drive Volatility
The Fed decision, UK Budget and ECB meeting were likely to shape sterling and euro movements in the coming sessions. Their impact would depend on how the announcements compared with expectations already reflected in exchange rates.
A less hawkish Fed could offer support to both currencies against the dollar. Sterling remained exposed to Budget surprises, while further French bond-market stress could challenge ING’s euro assessment.
For sterling and euro markets, central bank communication, fiscal credibility and incoming economic data remained the main factors to watch as investors reassessed relative interest rate expectations.