Euro and sterling advance against dollar as central bank outlooks diverge

The euro and British pound strengthened against the US dollar on Friday, October 30, extending their recovery as declining US Treasury yields reduced support for the greenback and investors reassessed the monetary policy outlook following this week's central bank decisions.

Sterling remained particularly resilient after Britain's latest fiscal announcements, while the euro drew support from expectations that the European Central Bank could raise interest rates again before the end of the year.

Price overview

EUR/USD traded around $1.1192, up 0.10% in Friday's session, while GBP/USD advanced 0.11% to $1.3392.

EUR/GBP hovered near £0.8357, leaving sterling close to its strongest level against the euro in 17 months.

ECB leaves rates unchanged

The European Central Bank maintained its main refinancing rate at 2.65% on Thursday, warning that higher energy costs could prolong inflation.

The decision kept expectations of a December rate increase alive, although concerns over French government finances continued to limit the euro's gains.

The announcement that ECB President Christine Lagarde will step down in February 2027 added another element of uncertainty to the policy outlook.

Sterling supported by UK budget

The pound benefited from a relatively calm market reaction to Chancellor John Healey's budget, which avoided major surprises despite Britain's difficult fiscal position.

Investors are also anticipating an interest rate increase from the Bank of England on November 5, with money markets pricing in further tightening next year.

US yields retreat

Declining Treasury yields reduced support for the dollar after renewed selling in US technology stocks encouraged demand for government bonds.

The Federal Reserve's decision to hold rates earlier this week offered little clarity on December's policy outlook.

Market outlook

The euro faces resistance near $1.1215, with support around $1.1170. Sterling could test $1.3407, while immediate support stands near $1.3374.

The next Bank of England decision could determine whether sterling extends its recent outperformance against the euro.