GBP/USD + GBP/EUR Market Update

GBP Surges to Multi-Month Highs as ONS May GDP Lands and BoE Hike Bets Firm; EUR/USD Holds Above 1.1450 Ahead of the Late-July Central Bank Cluster, Thursday, 16 July 2026

GBP/USD: 1.3532 | GBP/EUR: 1.1799 | EUR/USD: 1.1469

All three pairs have moved materially overnight, with GBP/USD adding roughly 130 pips from Wednesday's close as the combination of softer US CPI momentum, firming BoE rate-hike pricing, and reduced political risk from the Burnham succession drove sterling to levels not seen since mid-2025. The 10-year gilt yield edged up to near 5%, hovering just below a two-month high reached on Tuesday, as rising oil prices fuelled inflation concerns and reinforced expectations of further monetary tightening by the Bank of England, with Brent crude climbing to a one-month high amid escalating tensions in the Middle East. The session's pivotal event is the ONS May monthly GDP estimate, released at 7.00am, which will either validate or challenge the rate-hike narrative underpinning sterling's rally.

Overnight and Market Tone:

GBP/USD has traded in an approximate range of 1.3480-1.3545 overnight, with the pair finding broad support from a softer dollar and a continuation of the post-CPI relief trade that began on Wednesday. GBP/EUR has pushed to 1.1799, its highest print since the 10 July peak at 1.1752 was breached, as the euro side remains capped by expectations that market pricing implies an 88% probability that the ECB holds its deposit rate at 2.25% on 23 July. EUR/USD has drifted higher to 1.1469, supported by a broadly softer dollar rather than any fresh euro-positive catalyst. FTSE 100 futures are indicated around 10,479, with the index itself near 10,473, down modestly on the session. Brent crude is quoted near $84.82/bbl, a level that continues to keep inflation risk premium alive in gilt markets. Risk sentiment is cautiously constructive but fragile, with the GDP print the immediate test.

UK Data and Bank of England:

The ONS May monthly GDP estimate is scheduled for release at 7.00am today, 16 July 2026. This is the most significant domestic data point of the week and arrives at a critical juncture for BoE rate expectations. The April GDP reading provided a mixed backdrop: GDP is estimated to have grown by 0.7% in the three months to April 2026 compared with the previous three-month period, but fell by 0.1% in April itself compared with March, following growth of 0.3% in March, with the services sector growing by 0.8% in the February-April period and construction up 1.6%, but production contracting by 0.1%. Consensus for May is for a modest positive monthly print, with services the key swing factor. The bullish outcome for sterling would be breadth: solid services output would show domestic demand can absorb restrictive rates, while steady industrial and construction figures would ease the worry that growth leans on a single sector, making the BoE's hawkish minority easier to defend.

On the monetary policy side, 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%. The 18 June 7-2 vote, one more hawkish dissent than April's 8-1, has set the tone going into 30 July; the US-Iran ceasefire has pulled energy prices down from their June spike, easing the near-term inflation picture, but services inflation at 3.7% keeps a hike on the table. The BoE's own June guidance noted that CPI inflation was expected to be "a little under 3% in 2026 Q3" and "a little over 3.25% in Q4." Markets now fully price in a rate hike in November, with another expected by March 2027. OIS pricing implies roughly a 50-60% probability of a hike as early as 30 July, making today's GDP print a live input into that calculus. A strong May GDP reading would reinforce the hawkish minority's case; a soft print would likely see some of those hike bets unwound and GBP/USD retreat toward 1.3450.

European Backdrop and EUR/USD:

At its 11 June 2026 meeting, the ECB raised its main interest rates by 0.25 of a percentage point, with the deposit rate raised to 2.25%, citing the conflict in the Middle East generating inflation pressures in the eurozone. However, the subsequent data flow has substantially reduced the case for a follow-up move. Eurozone inflation fell to 2.8% in June from 3.2% in May, undercutting the case for further ECB rate hikes. ECB policymakers agreed to avoid providing guidance on the future path of interest rates following June's first rate hike since 2023, citing elevated economic uncertainty, according to the latest meeting minutes. Officials stressed that communication should remain neutral, neither signalling a series of further hikes nor suggesting the move was a one-off. The 23 July Governing Council meeting is therefore finely balanced: markets now 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.

For EUR/USD specifically, the pair has recovered from the mid-June lows near 1.1395 to 1.1469 this morning, a move driven primarily by the dollar side rather than euro-specific strength. Against the dollar, the euro is not really the actor: EUR/USD near current levels is being set by the Federal Reserve, not the ECB, and the Fed has had its own shock, with June payrolls at 57,000 cutting US hike expectations. The 1.14-1.15 zone has absorbed multiple tests already, including the March 2026 tariff-shock low and the June intraday low at 1.1435, and the ascending channel structure is intact; if this level holds on a weekly closing basis, the triple-top neckline becomes a failed breakdown, which would itself be a bullish signal. The resolution of this technical standoff, combined with the 23 July ECB decision and 29 July Fed meeting, makes the next four to six weeks decisive for EUR/USD's second-half trajectory. For treasurers with direct EUR/USD exposures, the pair's current position above 1.1450 represents a meaningful improvement from the 1.1395 lows of last week; the key question is whether the dollar's softness is durable or merely a reaction to the June CPI undershoot. A hawkish surprise from either the ECB or the Fed in the coming fortnight could shift the pair by 150-200 pips in either direction.

On the political front, attention has shifted to UK politics as Andy Burnham prepares to replace Keir Starmer as prime minister on 20 July, with the focus on his choice for finance minister; Ed Miliband, seen as fiscally expansive, has emerged as a candidate, a prospect that has unsettled gilt investors already wary of Britain's fiscal fragility. Any confirmation of a fiscally expansive appointment could weigh on gilts and, by extension, limit GBP upside even if the GDP print is supportive.

US Backdrop:

The federal funds rate remains at a target range of 3.50% to 3.75%, with futures markets assigning a 74.9% probability that the Fed will hold rates steady at the 28-29 July meeting, with a 25.1% chance of a quarter-point hike. Fed officials were divided on the future of interest rates and discussed a range of scenarios for the evolution of the economy and monetary policy, according to the minutes from the June FOMC meeting; participants generally assessed that upside risks to inflation remained elevated and a few commented that there was a case for raising interest rates. Chair Warsh, speaking at the ECB's Sintra forum, said inflation risks have eased in recent weeks but the Fed remains committed to restoring inflation to its 2% target, stressing that delivering price stability remains the primary objective while noting that the strategy to achieve it will continue to evolve. Today's US calendar is light, with weekly jobless claims the main release; the dollar's near-term direction will be shaped more by the 29 July FOMC than by any single data point this week.

Technical Picture:

GBP/USD: Resistance at 1.3545 (overnight high), then 1.3600 (psychological) and 1.3650 (year-to-date high zone). Support at 1.3480 (overnight low), 1.3420 (Wednesday's close), and 1.3358 (Tuesday's low).
GBP/EUR: Resistance at 1.1810 (round number), then 1.1830-1.1850 (analyst target zone per EBC research). A confirmed break above 1.1752 opens 1.1800, then 1.1830-1.1850; failure leaves 1.1680 and 1.1600 in focus. Support at 1.1752 (former one-year high, now pivotal), then 1.1680 and 1.1600.
EUR/USD: Resistance at 1.1490 (near-term), then 1.1540 and 1.1600. Support at 1.1435 (June intraday low), 1.1400 (key structural support), and 1.1350.
Outlook: GBP/USD's break above 1.3500 is technically significant and opens a run toward 1.3600 if today's GDP print is supportive; however, the pair is extended relative to recent ranges and a disappointing data release or a hawkish Fed repricing could see a sharp reversal toward 1.3420. EUR/USD's hold above 1.1435 keeps the medium-term ascending structure intact, but the pair needs a catalyst to break above 1.1500 convincingly.

Today's Calendar:

The 7.00am ONS May GDP release is the session's load-bearing event: a print at or above consensus would cement BoE hike expectations and likely push GBP/USD toward 1.3560-1.3600, while a miss, particularly if services output disappoints, could unwind a significant portion of this week's sterling rally and bring 1.3420 back into view before the European open.

Outlook:

GBP/USD's break above 1.3500 is the most significant technical development of the week and reflects a genuine shift in the BoE-Fed rate differential narrative, but the pair's durability depends on today's GDP print and the political clarity around the Burnham cabinet appointments ahead of the 20 July transition; a weak GDP reading or a fiscally expansive finance minister appointment could see the pair retrace sharply toward 1.3400-1.3420. For EUR/USD, the pair's hold above 1.1450 is constructive but the real test comes on 23 July (ECB) and 29 July (Fed), where any divergence in tone between the two central banks could drive a 150-200 pip move; treasurers with EUR/USD exposures should consider using the current level as an opportunity to layer forward cover ahead of that eight-day central bank window.

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.