GBP/USD + GBP/EUR Market Update

March CPI Beats at 3.3% as Ceasefire Deadline Arrives, Sharpening the MPC's Dilemma, Wednesday, 22 April 2026

GBP/USD: 1.3515 | GBP/EUR: 1.1503

Sterling opened the London session near 1.3515 against the dollar, broadly flat on Tuesday's close, as the market absorbed the in-line March CPI print and monitored ceasefire developments in real time. Peace talks between the US and Iran have stalled overnight, with reports that Vice President JD Vance cancelled a planned trip to Islamabad after Tehran notified Washington via Pakistan that it would not participate in the meeting, and Iran stated it would not reopen the Strait of Hormuz while the US Navy continues intercepting vessels. GBP/EUR has edged higher to 1.1503, reflecting modest euro softness ahead of the ECB's own 30 April decision.

Overnight & Market Tone:

Risk appetite is cautious but not panicked. Brent crude declined 0.59% to around $97.91 per barrel in early Asian trade, pulling back from Tuesday's close of $98.48 as markets weighed the ceasefire deadline against the absence of a diplomatic breakthrough. FTSE 100 futures are indicated around 10,674, up approximately 0.7% on the session, while Brent oil futures show a decline of around 9% on a rolling basis, reflecting the sharp volatility of recent weeks. The 10-year gilt yield rose to 5.09% on Tuesday, remaining elevated near multi-year highs as the higher CPI print reinforces the case for the MPC to hold rather than cut, keeping upward pressure on UK borrowing costs. The VIX remains elevated given geopolitical uncertainty, though equity markets are drawing some support from a solid US earnings season.

UK Data & Bank of England:

UK CPI rose by 3.3% in the 12 months to March 2026, up from 3.0% in the year to February. Prior to the conflict in the Middle East, experts had predicted inflation to fall from 3.0% in February; some forecasters had expected CPI to have risen to 3.3% in the year to March. On a monthly basis, CPI rose by 0.7% in March 2026, up from 0.3% the year before. CPIH rose by 3.4% in the 12 months to March, up from 3.2% in February. Motor fuels were the main driver of the monthly change in the annual CPIH and CPI rates, with falling prices in clothing partially offsetting the rise. The print lands precisely at consensus, removing an immediate hawkish shock to sterling, but the direction of travel is unambiguous. At its meeting ending on 18 March 2026, the MPC voted unanimously to maintain Bank Rate at 3.75%. The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, the risk of which will be greater the longer higher energy prices persist. The MPC meets again on 30 April with the base rate at 3.75%; before the Iran conflict, two rate cuts were expected in 2026, but markets are now split between a hold and a hike. PwC's economist noted that "markets are pricing in hikes, while economists generally expect rates to stay on hold, or even fall later in the year," adding that the Bank of England is in a difficult position, having to make judgements not only on the outlook for global geopolitics, but also on the extent to which higher energy prices will trigger a broader resurgence in inflation pressures. The Bank's own March guidance flagged that CPI is now likely to be between 3% and 3.5% in the second and third quarters of 2026, due to higher energy prices, a projection today's print confirms is tracking at the upper end.

European Backdrop:

At its 19 March 2026 meeting, the ECB kept its main interest rates unchanged, with the deposit rate left at 2.0%. ECB President Christine Lagarde stated that the Middle East conflict is likely to push average headline inflation to 2.6% in 2026, 2.0% in 2027 and 2.1% in 2028. Market pricing for the ECB's 29-30 April Governing Council meeting implies a 73.5% probability of no change to the 2% deposit facility rate, reflecting the bank's March decision to hold steady despite upwardly revised 2026 HICP inflation projections. March eurozone inflation surged to 2.5%, above the 2% target, driven by soaring oil prices, yet core pressures remain contained around 2.3%, supporting a pause; a 26% hike probability stems from some banks forecasting tightening if inflation persists, with President Lagarde signalling readiness for April action. A hold at the ECB next week, combined with a hold at the MPC, would leave GBP/EUR broadly range-bound, though any hawkish ECB surprise would weigh on the cross. ECB policymakers acknowledged that the war in the Middle East had made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for growth, though the environment could change rapidly.

US Backdrop:

The Federal Reserve has kept rates at 4.00%, and markets have now essentially ruled out any Fed cuts in 2026 given the inflationary impact of higher oil prices. The dollar retains a structural safe-haven bid so long as the Strait of Hormuz remains functionally closed, capping GBP/USD upside. President Trump extended the US-Iran ceasefire, noting that Tehran's leadership was "seriously fractured," adding that the truce would stay in place until Iran's leaders deliver a "unified proposal" to end the conflict - a development that briefly lifted risk sentiment in Asian trade. The US EIA weekly crude inventory report is due this afternoon and could generate intraday volatility in oil and, by extension, in GBP/USD.

Technical Picture:

GBP/USD: Resistance 1.3540, 1.3580 (last week's intraday high), 1.3620. Support 1.3480, 1.3440, 1.3390.
GBP/EUR: Resistance 1.1530, 1.1560, 1.1600. Support 1.1470, 1.1435 (2026 range low area), 1.1400.
Outlook: GBP/USD is consolidating in a narrow 1.3480-1.3540 band; a clean break above 1.3540 would require either a material de-escalation in the Middle East or a hawkish CPI surprise beyond today's in-line print. GBP/EUR is holding above 1.1470 support and may drift modestly higher if the ECB signals a hold on 30 April, but the pair remains sensitive to any shift in the relative rate outlook between the MPC and the Governing Council.

Today's Calendar:

The CPI print is the day's dominant domestic data point and has now been absorbed in line with expectations, removing an immediate directional catalyst for sterling. The ceasefire deadline is the single biggest tail risk for the remainder of the session: any resumption of hostilities or a formal breakdown in talks could push Brent back towards $100/bbl, weigh on risk sentiment, and pressure GBP/USD towards the 1.3480 support level.

Outlook:

Sterling's near-term path is almost entirely hostage to geopolitical developments rather than domestic fundamentals. An in-line CPI print removes the risk of an immediate hawkish repricing of the MPC, but it also confirms that the disinflationary trajectory the Bank had mapped out before the conflict has been materially disrupted, making a cut on 30 April increasingly unlikely. Any reopening of the Strait of Hormuz would likely trigger an immediate drop of between $10 and $20 in crude prices due to speculative positioning, though supply chain bottlenecks and lingering production outages would keep the market tight, likely anchoring Brent in the $80-$90 range rather than a full return to pre-crisis levels. For UK treasurers with USD or EUR payables in the coming weeks, the risk of a sharp move in either direction remains elevated: a diplomatic breakthrough would be GBP-positive via lower energy costs and improved risk appetite, while a ceasefire collapse would reignite the stagflation narrative and test GBP/USD support at 1.3440.

This commentary is provided for informational purposes only and should not be construed as investment, legal, or tax advice. Past performance is not indicative of future results. Please consult with qualified professionals before making any financial decisions. Vantry Capital Ltd is authorised and regulated by the Financial Conduct Authority.