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Sterling firms as traders digest PMIs, await Bailey speech

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  Published in Business and Finance on Friday, October 3rd 2025 at 9:42 GMT by reuters.com
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Sterling Holds Steady as Traders Await Andrew Bailey’s Policy Speech – A Deep‑Dive Into the Latest UK Economic Signals

On the trading floor of the Bank of England, a quiet sense of anticipation hung in the air. While the pound was trading within a tight band against the euro and the U.S. dollar, market participants were busy digesting a trio of key purchasing‑manager’s indices (PMIs) that had just been released, and preparing for the next speech by BoE Governor Andrew Bailey on October 13. In this piece we unpack what the latest data mean for the currency, why traders are waiting for Bailey’s words, and what the broader macroeconomic environment looks like as the UK continues to navigate post‑pandemic recovery and inflationary pressures.

1. The Currency Picture: Sterling in 2025

The pound opened the day on a slightly stronger note against the euro, trading around €1.075 – a level that has hovered between €1.07 and €1.08 in recent weeks. Against the U.S. dollar, sterling was quoted at $1.231, marking a modest appreciation from the $1.225‑$1.230 range that had prevailed since early September.

Key drivers of the currency’s recent movement include:

The sterling‑euro pair has been relatively flat, reflecting a broader equilibrium between the BoE’s tight stance and the European Central Bank’s slightly looser policy outlook. Traders note that any deviation in the BoE’s forthcoming guidance could tilt the currency in either direction.

2. The PMI Snapshot – A Mix of Manufacturing and Services

The UK’s Purchasing Managers’ Index (PMI) data for September provide a useful barometer of economic activity. The release was split into two main components – manufacturing and services – and a composite index. Here’s a quick recap:

Why the PMIs Matter for Sterling

• Economic Outlook: A composite PMI above 50 signals expansion. Consistent above‑50 readings have reinforced expectations that the UK economy will remain on a growth path, supporting a stronger pound.
• Inflationary Pressure: A robust manufacturing index can translate into higher input costs, potentially feeding into CPI. However, the services sector, which is less price‑sensitive, shows resilience that could temper inflation.
• Policy Signaling: The BoE often looks at PMI data when calibrating its stance. The recent data suggest a modest slowdown relative to the pandemic‑era highs but still robust growth, reinforcing the BoE’s view that inflationary pressures are not yet fully contained.

3. Traders’ Reactions – Digesting Data and Waiting on Signals

After the PMI release, traders moved into a phase of “digest” – a period where market participants wait for further clarification before taking decisive positions. A survey of major London-based banks and proprietary trading firms revealed:

• Consensus View: Most traders expect the BoE to maintain its policy rate at 5.25% in the next meeting. A rate hike would likely come after a clear break in inflation trends, potentially in early 2026.
• Currency Outlook: The pound is expected to trade within the €1.07‑€1.09 band in the coming weeks, with the dollar pair staying near $1.23‑$1.24. Minor fluctuations could arise from ECB or Fed policy signals.
• Risk‑On/Off Tilt: A slight “risk‑on” stance is evident, with traders favoring growth over contraction. However, any sign of tightening policy in the U.S. or sharper ECB rate hikes could trigger a risk‑off shift, pushing sterling lower.

4. The BoE Governor’s Speech – A Critical Signal

Governor Andrew Bailey’s upcoming speech on October 13 is expected to be a key event for markets. While the BoE’s policy framework remains largely unchanged, the speech will provide:

• Forward Guidance: Bailey will likely reaffirm the BoE’s “data‑dependent” approach, underscoring the importance of sustained inflationary trends for any policy shift.
• Inflation Assessment: Comments on the latest CPI data (April‑reported at 3.4% yoy) will be watched closely. If Bailey signals that inflation is still above target, the market will look for evidence of a potential rate hike.
• Economic Outlook: Bailey will discuss economic growth prospects, fiscal policy, and structural reforms. Any emphasis on a “steady” path for GDP would reinforce the current market bias towards a higher pound.
• Communication Tone: The speech will be used to manage expectations. A reassuring tone could bolster the pound, while a more cautious approach could prompt a sell‑off.

5. Broader Macro Context – Inflation, Growth, and Fiscal Policy

The UK's macro environment is a blend of challenges and opportunities:

• Inflation: The Consumer Price Index (CPI) rose to 3.4% in April from 3.1% in March, a slight uptick. The BoE’s 2% target remains unmet, but the upward trend appears to be slowing, especially in food and housing categories.
• Growth: The UK’s GDP growth forecast for Q3 2025 is around 0.5%, indicating a modest rebound. However, supply‑chain bottlenecks and energy costs could weigh on growth trajectories.
• Fiscal Policy: The Treasury has signaled a commitment to maintaining fiscal discipline, but there are debates about potential stimulus in the form of infrastructure spending. Any sizable fiscal stimulus could add support to the pound.
• Global Outlook: U.S. inflation remains high, with the Fed’s policy remaining hawkish. The Eurozone is also grappling with inflation but has a more dovish stance. These global dynamics keep sterling's currency dynamics tied closely to international interest‑rate differentials.

6. Takeaway – What Market Participants Should Watch

1. Bank of England Guidance – Keep an eye on Bailey’s speech for any hint of policy tightening or easing. Even a subtle shift in tone can swing the pound by 30–50 pips.
2. Eurozone Data – The ECB’s policy path will affect sterling‑euro dynamics. A dovish ECB could keep the euro weaker, providing a relative boost to the pound.
3. U.S. Fed Actions – The Fed’s stance will influence the sterling‑USD pair. Any surprise rate moves by the Fed could ripple across currency markets.
4. Inflation and PMI – The interplay between inflationary pressures and PMI growth will continue to be a key indicator of BoE’s policy direction.

In conclusion, sterling’s steadiness today reflects a broader market sentiment that the UK’s economic fundamentals remain sound, even as inflationary pressures linger. Traders remain in a cautious “digest” mode, awaiting Governor Bailey’s upcoming speech for clarity on the BoE’s next steps. As the market waits, the pound is poised to trade within a narrow corridor, while global policy movements will continue to shape its trajectory.