GBP/USD + GBP/EUR Market Update

GBP Extends to Fresh One-Year Highs as Burnham Succession Nears and Brent Stabilises Near $78; EUR/USD Holds 1.1440 Ahead of the Late-July Central Bank Cluster, Friday, 10 July 2026

GBP/USD: 1.3425 | GBP/EUR: 1.1735 | EUR/USD: 1.1440

All three pairs have opened Friday with a constructive tone: GBP/USD traded around 1.3431, extending its recovery to fresh one-year highs as sterling continued to outperform while the US dollar remained under pressure. GBP/EUR climbed to another one-year high, marking a fourth consecutive session of gains as fading UK political uncertainty continued to support sterling. EUR/USD holds near 1.1440, consolidating this week's gains ahead of a thin Friday calendar, with the main focus shifting firmly to next Tuesday's US CPI print and the late-July policy decisions.

Overnight & Market Tone:

Risk appetite is broadly constructive but cautious. Brent crude held near $78.3 per barrel on Thursday after rising 5.2% in the previous session, its strongest daily gain since May, as markets reassessed the outlook for Middle East supply following renewed US and Iranian hostilities. The latest escalation, including further US strikes on Iran and retaliatory attacks on American bases in the region, has placed the Strait of Hormuz back at the centre of energy market concerns, though the extent of disruption to oil flows remains uncertain. UK 10-year gilt yields crossed the 4.9% mark earlier this week, touching their highest level since June, as traders ramped up bets on Bank of England rate hikes following the surge in crude oil prices; yields have since edged back but remain elevated near 4.95%. According to Bloomberg's live markets blog, the FTSE 100 is outperforming European peers this morning, with UK equities finding support from energy sector strength and the political clarity provided by the Burnham succession.

UK Data & Bank of England:

There are no tier-one UK data releases today. Attention will turn to next Tuesday's final first-quarter UK GDP estimate, together with manufacturing production, industrial production and trade balance figures. The domestic narrative remains anchored by the June MPC outcome: at its meeting ending on 17 June 2026, the MPC voted by a majority of 7-2 to maintain Bank Rate at 3.75%, with two members voting to increase Bank Rate by 0.25 percentage points to 4%. Bank Rate therefore stands at 3.75%, and UK CPI held at 2.8% in May, but services inflation rose to 3.7%, keeping the MPC cautious. On 18 June, the Bank said CPI inflation was expected to be "a little under 3% in 2026 Q3" and "a little over 3.25% in Q4." OIS pricing implies markets now fully expect at least one further 25bp hike by year-end, most likely at the December meeting, with the 30 July decision widely expected to be a hold. The tone of the MPC statement and the vote split on 30 July are likely to matter more than the rate decision itself: a hawkish hold with multiple dissents could push GBP higher, while a dovish signal could see sterling drift lower. On the political front, Andy Burnham is on the brink of becoming Britain's next prime minister after securing the backing from 80% of Labour lawmakers, having secured the support of 322 of the 403 Labour members of Parliament. Burnham has already sought to calm markets by committing to the government's current borrowing limits and pledging fiscal discipline. GBP's recent strong performance is due in large part to a significant unwinding of the political risk premium that had been priced into the currency when markets were speculating over Prime Minister Keir Starmer's future.

European Backdrop & EUR/USD:

The ECB lifted its deposit facility rate by 25bp to 2.25% at its June meeting, marking a decisive pivot back to tightening as the Iran war pushed eurozone inflation to its highest level in nearly three years. In the ECB's baseline projections, headline inflation is expected to average 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028, with core inflation (excluding energy and food) averaging 2.5% in 2026 and 2027. The ECB's 23 July meeting is a non-projection meeting, meaning no updated staff macroeconomic projections will be published alongside the decision. A hold at July, following the June hike to 2.25%, would be interpreted as a deliberate pause; the euro might weaken modestly as markets price out near-term hike risk. Markets are pricing roughly a 50% probability of a further hike in September, suggesting the June move is seen as the opening of a new tightening phase rather than a targeted, one-off intervention.

For EUR/USD specifically, the pair is holding near 1.1440, consolidating the week's gains in a narrow range. The cross sits comfortably above the late-June trough near 1.1350 and is testing the upper end of the 2026 trading band. With both the Fed and ECB now leaning cautious rather than clearly diverging, EUR/USD lacks a strong directional driver; the pair is, in effect, stuck between a firm-but-fading dollar and a euro whose rate-hike story has stalled. The ECB's deposit rate at 2.25% sits 150bp below the BoE's 3.75%, which continues to compress GBP/EUR and limit EUR/USD upside via the cross. Treasurers with direct EUR/USD exposures should note that the pair's near-term range is likely to be defined by next Tuesday's US CPI (14 July): a hot print could revive Fed hike pricing and push EUR/USD back toward 1.1350-1.1380, while a soft reading could extend the move toward 1.1500. The ECB's baseline sees eurozone economic growth at just 0.8% in 2026, a downward revision reflecting a more pronounced impact of the war on commodity markets, real incomes and confidence, which limits the euro's fundamental upside even if the ECB tightens further in September.

US Backdrop:

The Fed decided to maintain the target range for the federal funds rate at 3.50-3.75% at its June meeting. The dot plot showed nine members projecting at least one hike in 2026, while eight others projected rates to remain unchanged. The June FOMC minutes confirmed a 9-to-9 split among policymakers regarding a rate hike in 2026, keeping the market highly volatile. In early July, the Fed maintained its higher-for-longer stance with inflation remaining elevated and economic activity solid; market expectations have solidified around no change at the 28-29 July meeting. The dollar's inability to sustain gains despite this hawkish backdrop reflects the broader theme of political uncertainty and the fading of the safe-haven premium that had built during peak Middle East tensions. US CPI on 14 July is the next major USD catalyst.

Technical Picture:

GBP/USD: Resistance at 1.3450 (psychological), then 1.3500 (round number and 2025 high zone). Support at 1.3380 (this week's intraday low), then 1.3310 (50-day moving average area).
GBP/EUR: Resistance at 1.1750 (current one-year high), then 1.1800 (multi-year level). Support at 1.1700 (intraday pivot), then 1.1650 (prior breakout zone).
EUR/USD: Resistance at 1.1470 (this week's range high), then 1.1500 (round number). Support at 1.1400 (psychological), then 1.1350 (late-June consolidation base).
Outlook: All three pairs are holding near the upper end of their recent ranges on a quiet Friday, with momentum broadly constructive for GBP; a close above 1.3450 in GBP/USD and 1.1750 in GBP/EUR would open the next leg higher, but thin Friday volumes and the proximity of next week's US CPI argue for caution on chasing the move.

Today's Calendar:

Today's session is data-light and likely to be technically driven; the University of Michigan sentiment reading at 13.30 could nudge USD at the margin, but the dominant focus is already on Tuesday's US CPI, which will set the tone for all three pairs heading into the late-July central bank cluster.

Outlook:

The near-term bias for GBP remains constructive, supported by the unwinding of political risk as the Burnham succession approaches, elevated gilt yields, and a 150bp BoE-ECB rate advantage; the next major decisions fall in late July (ECB 23 July, Fed 28-29 July, BoE 30 July), making that an eight-day window of concentrated event risk that is the most significant of the quarter. Treasurers with USD payables at current GBP/USD levels materially above the late-June trough near 1.3161, or EUR payables at GBP/EUR near one-year highs, should weigh the merits of forward cover before Tuesday's US CPI: a hot print that revives Fed hike pricing is the single most plausible catalyst for a sharp reversal across all three pairs.

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.