GBP/USD + GBP/EUR Market Update

Sterling Slips as ONS CPI Undershoots Consensus; EUR/USD Steady Ahead of Tomorrow's ECB Decision, Wednesday, 22 July 2026

GBP/USD: 1.3388 | GBP/EUR: 1.1729 | EUR/USD: 1.1414

Sterling has retreated across the board following a softer-than-expected UK inflation print, with the annual CPI rate easing to 2.6% in June from 2.8% in May, slowing more than the expected fall to 2.7%. GBP/USD has pulled back to 1.3388 from Tuesday's 1.3441, while GBP/EUR has slipped to 1.1729 as the data reduces the near-term case for a BoE hike. EUR/USD is broadly stable near 1.1414 as the market's attention pivots to tomorrow's ECB Governing Council meeting.

Overnight & Market Tone:

Risk sentiment is cautiously constructive this morning. The VIX stands near 17.05, while Brent crude futures are quoted around $92/bbl, having risen to $91.10 on Tuesday, up 2.11% on the day, with the month-on-month gain now running at nearly 17% as Middle East supply risks persist. Markets continue to monitor the US-Iran conflict, with another tanker reportedly struck near the Strait of Hormuz, highlighting ongoing risks to shipping. The US 10-year Treasury yield sits near 4.622%, and the Dollar Index is little changed near 100.96. European equities closed modestly higher on Tuesday, with the FTSE 100 up around 0.55%, and pre-market indications suggest a steady open this morning pending any fresh data reaction to the CPI print.

UK Data & Bank of England:

The ONS released the latest UK CPI data this morning (22 July). CPI inflation rose by 2.6% in the 12 months to June 2026, and BoE rate-setters will be watching closely to help inform the 30 July decision on whether to move rates from 3.75%. The headline undershoot of the 2.7% consensus is the first clean downside miss since March. One of the largest contributors to the slowdown was a fall in the price of fuel, particularly diesel. Services inflation, the MPC's preferred domestic pressure gauge, is the key detail to watch in the full release: TD Securities had expected headline CPI at 2.7% year-on-year, with core CPI at 2.6% and services at 3.6%, and any undershoot in services relative to that estimate will further erode the case for the two hawkish dissenters. Bank Rate stands at 3.75%, held on 18 June in a 7-2 vote, with Megan Greene and Huw Pill voting for a hike to 4.00%. The 18 June 7-2 vote, one more hawkish dissent than April's 8-1, had set the tone going into 30 July; the US-Iran ceasefire had already pulled energy prices down from their June spike, easing the near-term inflation picture, but services inflation at 3.7% in May had kept a hike on the table. Today's softer headline, if confirmed by a cooling services print, shifts the balance further toward a prolonged hold. TD Securities notes that concerns shift to whether wages respond to higher inflation, but with the labour market loosening and reduced worker bargaining power, the BoE is more likely to remain on a prolonged hold at its already-restrictive Bank Rate level rather than elect for an imminent hike. OIS pricing, which had implied roughly a 30-35% probability of a hike at the 30 July meeting following Tuesday's labour market data, is expected to ease further on this morning's print.

European Backdrop & EUR/USD:

The ECB is the dominant European event risk this week. The ECB Governing Council will announce its monetary policy decision on Thursday, 23 July 2026, at 13.45 CET, with President Christine Lagarde's press conference following at 14.30 CET. The Governing Council raised all three key ECB interest rates by 25 basis points at its June meeting, taking the deposit facility rate to 2.25%, the MRO rate to 2.40%, and the marginal lending facility rate to 2.65%, with effect from 17 June 2026. Eurozone inflation fell to 2.8% in June from 3.2% in May, back near the ECB's target and undercutting the case for further hikes; markets now price an 88% probability the ECB holds at 2.25% on 23 July. July is a non-projection meeting, meaning no updated staff macroeconomic projections will be published alongside the decision, which places the entire signalling burden on the policy statement and Lagarde's tone in the Q&A. ING noted after June's decision that the ECB's own forecasts do not immediately call for aggressive rate hikes, and Lagarde refuted the phrase "insurance rate hike" at the June press conference. The ECB's own assessment is that the outlook remains uncertain, with upside risks for inflation and downside risks for economic growth, and that the full implications of the energy shock for medium-term inflation and growth will depend on the intensity and duration of the price shock.

For EUR/USD specifically, the pair sits near 1.1414, broadly unchanged from Tuesday's close of 1.1423 and well within the 1.12-1.18 range that analysts broadly expect through Q3. The ECB is currently the only major central bank actively raising rates while the Fed holds, yet EUR/USD remains stuck near $1.143 because the US-eurozone yield gap still favours the dollar by roughly 125-150 basis points, and eurozone growth is projected at just 0.8% in 2026. Rising oil is a two-sided force for the euro: inflationary, so hawkish for rates, but simultaneously a growth drag through Europe's energy import bill. A hawkish hold tomorrow, in which Lagarde signals the Governing Council remains alert to second-round effects, could provide a modest EUR/USD lift toward 1.1450-1.1480. A dovish hold, in which the statement emphasises growth risks and signals the June hike was sufficient, risks a drift back toward 1.1350. Treasurers with direct EUR/USD exposures should treat the 14.30 CET press conference as the primary event risk for the pair this week.

US Backdrop:

Fed Chair Kevin Warsh stated at the ECB Forum in Sintra on 1 July that "prices are too high," reaffirming his intention to deliver price stability while dismissing any comfort with an inflation target above 2%. CME FedWatch pricing assigns approximately 25% probability to a 25-basis-point rate hike at the 28-29 July FOMC meeting, with the base case remaining a hold. The June FOMC's Summary of Economic Projections put PCE inflation at 3.6% in 2026 and core PCE at 3.3%, keeping the dollar broadly supported. No major US data releases are scheduled today, leaving the USD theme anchored by the pre-FOMC blackout period and elevated energy prices.

Technical Picture:

GBP/USD: Resistance at 1.3441 (Tuesday's high), then 1.3532 (16 July peak, the 2026 high). Support at 1.3340 (intraday pivot), then 1.3280 (mid-July consolidation base).
GBP/EUR: Resistance at 1.1767 (Tuesday's close) and 1.1800 (16 July high). Support at 1.1700 (round-number level), then 1.1650 (prior breakout zone).
EUR/USD: Resistance at 1.1450 (recent range ceiling) and 1.1480 (early July high). Support at 1.1370 (this week's low), then 1.1320 (June consolidation floor).
Outlook: GBP/USD and GBP/EUR are both in mild corrective mode following the CPI undershoot, with the 30 July BoE decision now the next meaningful catalyst; EUR/USD is range-bound ahead of tomorrow's ECB, and a break of either 1.1480 or 1.1320 would signal the next directional leg.

Today's Calendar:

The UK flash PMI at 09.30am is the session's secondary data point; a composite reading below 50 would compound the CPI-driven dovish repricing for sterling and could push GBP/USD toward the 1.3340 support level.

Outlook:

The CPI undershoot has shifted the near-term bias for GBP/USD modestly lower, with the pair likely to consolidate in a 1.3320-1.3440 range until the 30 July BoE decision provides fresh direction; the key risk to the upside is a services inflation print that proves stickier than the headline implies, which would revive hike bets and support sterling. For EUR/USD, tomorrow's ECB decision and Lagarde's press conference are the pivotal event: a hawkish hold could lift the pair toward 1.1480, while a growth-focused, dovish hold risks a test of 1.1320, with direct implications for UK corporates managing euro receivables or payables ahead of the month-end.

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.