GBP/USD + GBP/EUR Market Update

GBP Recovers as US CPI Undershoots and Warsh Testimony Calms Hike Fears; EUR/USD Firms Above 1.1420 Ahead of ONS GDP and the Late-July Central Bank Cluster, Wednesday, 15 July 2026

GBP/USD: 1.3402 | GBP/EUR: 1.1732 | EUR/USD: 1.1423

All three pairs have partially retraced Monday's sharp risk-off move, which saw Brent surge above $85/bbl on renewed US strikes against Iran and the reimposition of a Hormuz blockade. US Treasury yields fell on Tuesday after the June CPI print came in at 3.5% year-on-year, a larger-than-expected decline against the 3.8% consensus forecast. That softer print, combined with Fed Chair Kevin Warsh's congressional testimony released alongside the data, has provided the immediate catalyst for the GBP/USD recovery to 1.3402 and EUR/USD's hold above 1.1420, though energy-driven inflation risk keeps the broader picture two-sided ahead of tomorrow's ONS GDP release and next week's central bank cluster.

Overnight and Market Tone:

GBP/USD has recovered from Monday's low near 1.3340 to trade around 1.3402 this morning, broadly retracing the Hormuz-shock sell-off, while GBP/EUR is marginally firmer at 1.1732 versus Tuesday's 1.1723 close. EUR/USD has edged up to 1.1423 from 1.1395. Today's intraday range for Brent crude futures is between $85.05 and $86.36, a slight easing from Tuesday's peak above $85/bbl but still materially elevated. The 10-year UST yield fell more than 2 basis points to 4.583%, while the 2-year note declined more than 7 basis points to 4.185% following the CPI print, relieving some of the rate-differential pressure that had weighed on GBP/USD through the early part of the week. UK 10-year gilt yields fell back below 5%, though they remained near two-month highs, tracking the UST move lower after the softer US inflation data, while Middle East tensions continued to raise concerns that rising energy prices could reignite UK inflation. FTSE 100 pre-market indications are modestly positive, consistent with the broader risk-on tone following the CPI release, though energy-sector gains are limiting the index's upside sensitivity to lower yields.

UK Data and Bank of England:

UK CPI rose by 2.8% in the 12 months to May 2026, unchanged from April. Services inflation was 3.7% in May, up from 3.2% in April, and it is this component that is keeping the MPC on alert. On 18 June, the Bank said, based on energy market pricing as of 15 June, that CPI inflation was expected to be "a little under 3% in 2026 Q3" and "a little over 3.25% in Q4," though the subsequent Hormuz re-escalation has complicated that picture materially. The June MPC vote was 7-2 to maintain Bank Rate at 3.75%, with two members voting to increase Bank Rate by 0.25 percentage points to 4%. Chief economist Huw Pill and external member Megan Greene both voted to increase interest rates to 4%, and MPC member Catherine Mann has since signalled she is prepared to back an increase if inflation expectations do not improve. Markets responded to Monday's Hormuz escalation by pricing in further BoE rate hikes, nearly fully expecting two increases in 2026, with a September hike now fully priced in. The softer US CPI has trimmed some of that pricing at the margin, but OIS markets still imply a high probability of a hike at the 30 July meeting. Attention has also shifted to UK politics, as Andy Burnham prepares to replace Keir Starmer as prime minister on 20 July; the focus is on his choice for finance minister, with Ed Miliband, seen as fiscally expansive, emerging as the favourite, a prospect that has unsettled gilt investors already wary of Britain's fiscal fragility. The key domestic data event is tomorrow's ONS May GDP release. Markets expect the British economy to have recovered by 0.1% in May, which could offer GBP modest support, though GDP is estimated to have fallen by 0.1% in April compared to March, meaning a miss would revive growth concerns and could weigh on GBP.

European Backdrop and EUR/USD:

The ECB raised its three key interest rates by 25 basis points at its June meeting, with the Governing Council stating that the war in the Middle East is generating inflation pressures and that the decision to raise rates is robust across a range of scenarios. The deposit facility rate now stands at 2.25%, effective from 17 June 2026. 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) forecast at 2.5% in both 2026 and 2027. ECB policymakers agreed after June's meeting to avoid providing guidance on the future rate path, citing elevated economic uncertainty, with officials stressing that communication should remain neutral, neither signalling a series of further hikes nor suggesting the move was a one-off. Markets currently see a 70% chance of a September rate hike, as the latest oil price surge following renewed US-Iran strikes has outweighed the relatively dovish tone struck by ECB officials at the early-July Sintra forum, where they had signalled less urgency for additional tightening. The ECB's next scheduled policy meeting ends on 23 July, making it the first of the three central bank decisions in the late-July cluster.

For EUR/USD specifically, the pair has recovered from Tuesday's low near 1.1395 to 1.1423 this morning, supported by the softer US CPI reducing the immediate case for Fed tightening. The BoE-ECB rate differential of 150 basis points (3.75% versus 2.25%) continues to underpin GBP/EUR near 1.1732, consistent with the pair's recent range. EUR/USD sits in the middle of its recent 1.1395-1.1440 band. The key driver for EUR/USD over the next fortnight is the relative hawkishness of the ECB versus the Fed at their respective 23 July and 29 July meetings: if the ECB signals a September hike while the Fed holds and softens its tone, EUR/USD has scope to push towards 1.1480-1.1500; conversely, a dovish ECB combined with a hawkish Fed statement could see the pair retest 1.1350. Treasurers with direct EUR/USD exposures should note that the pair's sensitivity to energy prices is asymmetric: a further Brent spike above $90/bbl would likely hurt EUR more than USD given Europe's greater import-energy dependence, compressing EUR/USD back towards 1.1300.

US Backdrop:

The June US CPI fell 0.4% on the month, bringing the annual rate to 3.5%, a materially softer print that has reduced near-term hike expectations. Futures markets now assign a 74.9% probability that the Fed will hold rates steady at the 29 July meeting, with a 25.1% chance of a quarter-point hike. FOMC minutes released on 14 July showed Fed officials were divided on the future of interest rates, with participants generally assessing that upside risks to inflation remained elevated and a few commenting that there was a case for raising interest rates. However, under their most likely economic outlook, many officials expected interest rates to end the year at or slightly below their current level. Today's US calendar is relatively light following yesterday's CPI, with Warsh's testimony now digested; retail sales data are due later in the week and will be the next significant USD catalyst.

Technical Picture:

GBP/USD: Resistance at 1.3425 (last week's high) and 1.3450. Support at 1.3358 (Tuesday's low) and 1.3300 (round-number and early-July congestion).
GBP/EUR: Resistance at 1.1741 (recent one-year high) and 1.1760. Support at 1.1700 and 1.1670 (mid-June base).
EUR/USD: Resistance at 1.1440 (last week's high) and 1.1480. Support at 1.1395 (Tuesday's low) and 1.1350 (early-July floor).
Outlook: All three pairs have reclaimed their post-Hormuz losses but remain capped by the energy-inflation overlay; a clean break above 1.3425 in GBP/USD and 1.1440 in EUR/USD would require either a further softening in US data or a de-escalation in the Strait of Hormuz, neither of which appears imminent.

Today's Calendar:

Tomorrow's ONS May GDP print at 07.00am is the session's pivotal domestic release: a miss below the +0.1% consensus would revive growth concerns and could push GBP/USD back below 1.3370, while a beat would reinforce the BoE's hawkish-hold stance and support a retest of 1.3425.

Outlook:

The immediate bias across all three pairs is cautiously constructive following the US CPI undershoot, but the window between now and the late-July central bank cluster (ECB 23 July, Fed 29 July, BoE 30 July) is short and event-dense: tomorrow's UK GDP, the Burnham cabinet announcement on 20 July, and any further Hormuz developments could all materially reset the pairs before the decisions themselves. The base case for the 30 July BoE meeting remains a hold at 3.75% with a hawkish tilt while services inflation stays elevated, and a realistic chance of further dissents for a hike, which should keep GBP/EUR supported near 1.1700-1.1740; treasurers with USD payables near current GBP/USD levels of 1.3400 should consider locking in forward cover given the two-way risk the cluster represents.

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.