Market Overview (1 Oct 2026)

Sterling weakened, with GBP/USD down 0.38% to $1.3215, while the euro slipped 0.37% to $1.1288. The U.S. 10‑year Treasury yield rose to 5.34%, near a 52‑week high, and the dollar index tested the year’s peak at 101.80. A global bond sell‑off lifted long‑dated yields, sending UK 30‑year gilt yields to 6%, the highest level in almost three decades, and pushing the FTSE 100 down nearly 2%.

Commentary from Market Participants

ING’s global head of markets, Chris Turner, said that “dollar debasement fears have been set aside for now as the cyclical story takes centre stage,” and that barring a breakthrough in US‑Iran negotiations the dollar is likely to stay bid throughout October. He noted the dollar index has risen in seven of the last ten Octobers. Turner added that the euro’s decline reflects a “hawkish reassessment of Fed policy rather than any independent euro weakness,” and highlighted the OAT‑Bund spread widening to 127 basis points as “quite an alarming move” that could add a risk premium and constrain the ECB’s tightening cycle.

Turner projected the DXY to trade between 101.50 and 101.80 on the day, with an upside breakout possible on strong U.S. payroll data or further European debt weakness. He gave no specific target for GBP/USD but suggested EUR/USD may find a bottom around 1.1300‑1.1320, with a potential drop to the 1.11‑1.12 area if the OAT‑Bund spread widens further and U.S. data remain strong.

U.S. Economic Data Context

Soft August PCE inflation barely dented rate expectations; the one‑month USD OIS rate priced one‑year forward briefly fell 5 bp before retracing the move. ADP data indicated accelerating payrolls. Market participants await the upcoming U.S. jobless claims and ISM manufacturing reports, with a headline ISM reading of 55 expected. Fed officials Neel Kashkari and Chris Waller were scheduled to speak, with ING noting that Waller’s remarks would be “more interesting should he stray away” from pure data into monetary policy.

UK Domestic Factors

Nationwide reported annual house‑price growth slowing to 0.8% in September from 1.6% in August. Chief economist Robert Gardner said market activity and house prices have remained subdued, reflecting an uncertain economic backdrop. The pressure on Chancellor John Healey intensified ahead of his first Budget of the month.

Political and Eurozone Developments

Prime Minister Andy Burnham called for a debate on closer EU ties, possibly including re‑joining, prompting a further fall in EUR/GBP this week. Turner flagged a UK‑EU summit around 20 Nov. ECB speakers Joachim Nagel, Christine Lagarde, and Isabel Schnabel were due to comment, though Turner judged the chances of the ECB “out‑hawking” the Fed as slim.

Outlook

ING expects the euro‑dollar pair to respect the 1.1300‑1.1320 range as a near‑term floor, with further downside possible if European bond spreads widen and U.S. data stay robust. The dollar index is projected to stay within the 101.50‑101.80 band, while no specific GBP/USD target was provided.