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The "Higher for Longer" Disconnect

ended 05. October 2026

In September, the Bank of England held UK rates at 3.75%. By contrast, both the Fed and the ECB raised their base rates, the Fed for the first time in three years.

Has the market underpriced how long central banks will hold rates? 

And how is the divergence between the Fed, ECB and Bank of England re-pricing the major currency pairs?

What's the immediate outlook for the Pound, the Dollar and the Euro in October?

3 responses from the Newspage community

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Tony RedondoVerified
Founder at Cosmos Currency Exchange
September marked a pivot in global monetary policy. The major central banks decoupled, and, true to form, the BoE showed itself a follower, not a leader. The Fed hiked 25bps to 3.75%–4.00%, its first rise in three years, and the ECB tightened too. The BoE sat tight at 3.75%, despite a 6–3 split and a second month of three hawkish dissenters. Markets have underpriced how long rates stay high, misjudging energy pass-through lags from Middle East volatility, sticky core inflation (UK 3.1%, US 3.4%) and central bank resolve. Short-end curves are repricing higher. That divergence is moving yield differentials across the majors. The dollar enters October bullish, backed by a restored yield advantage and safe-haven flows. The euro stays bearish on French debt worries. Sterling faces pressure against the dollar, though active BoE gilt sales give it underlying structural yield support.
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Stephen PerkinsVerified
Norwich Mortgage Broker and Managing Director at Yellow Brick Mortgages
The Fed and ECB raising rates while the Bank of England holds at 3.75% increases the pressure on the MPC, particularly when three members already voted for a rise in September. It doesn’t mean the Bank has to follow them, because UK rates will ultimately be determined by UK inflation and economic conditions, but the direction of travel globally is difficult to ignore.

For mortgage borrowers, the important point is that markets don’t wait for the Bank of England. Funding costs and fixed mortgage rates can move higher well before an MPC vote, so waiting for November in the hope that nothing changes in the meantime could be a risky assumption.
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Nouran MoustafaVerified
Practice Principal & IFA at Roxton Wealth
Markets spent too long asking when rates would fall and not enough time asking whether central banks might have to tighten again.

September exposed that mistake. The Fed and ECB raised rates while the Bank of England held at 3.75%, but even in the UK three MPC members wanted a hike. Higher energy costs and stubborn inflation have pushed “higher for longer” back from theory into market pricing.

For currencies, the dollar currently has the strongest hand because US yields remain high and global risk aversion favours it. Sterling looks more resilient against the euro than against the dollar, while the euro is being squeezed by weaker sentiment and fiscal concerns inside the bloc.

For October, I would expect volatility rather than a clean trend.

The market is no longer pricing the next cut. It is pricing who blinks first.