GBP/USD + GBP/EUR Market Update

ECB Hold Expected but Lagarde Press Conference is the Real Event; Sterling Consolidates Post-CPI as BoE Hold Odds Firm, Thursday, 23 July 2026

GBP/USD: 1.3377 | GBP/EUR: 1.1709 | EUR/USD: 1.1425

Sterling is trading modestly lower across the board this morning, with GBP/USD at 1.3377 and GBP/EUR at 1.1709, as the residual drag from Tuesday's softer-than-expected ONS June CPI print (2.6% versus the 2.7% consensus) continues to suppress BoE hike expectations. The ECB meets today and almost nobody expects it to do anything dramatic, with markets pricing a greater than 99% probability of no rate change. The real market-moving event is Lagarde's press conference, where the tone on September and inflation risk assessments will determine the direction of EUR/USD and, by extension, GBP/EUR for the remainder of the week.

Overnight & Market Tone:

Overnight price action was contained, with GBP/USD holding a narrow range around 1.3370-1.3390 in Asian trade before edging to 1.3377 in early London hours. GBP/EUR drifted from Wednesday's 1.1729 close to 1.1709, reflecting a modest EUR bid ahead of the ECB event, while EUR/USD firmed slightly to 1.1425 from 1.1414. The S&P 500 VIX stands near 16.02, indicating contained risk aversion, while Brent crude futures are around $84.96/bbl, broadly stable after the Iran-US ceasefire extension has removed the acute energy-price spike that dominated Q1 2026. FTSE 100 pre-market futures point to a flat-to-slightly-firmer open, consistent with the cautious but not risk-off tone across European equities. The US 10-year Treasury yield is near 4.573%, while the 10-year gilt has settled in the mid-4.5% area following its dramatic retreat from the near-5% peaks seen in March and April when Middle East tensions were at their height.

UK Data & Bank of England:

There are no scheduled UK data releases today, leaving sterling to trade on the residue of this week's ONS CPI print and the forward-looking BoE narrative. Tuesday's ONS June CPI reading of 2.6% - one tenth below the 2.7% consensus - trimmed the hawkish tail of the MPC distribution and pulled GBP/USD back from the 1.3441 high seen earlier in the week. At the June 2026 MPC meeting, the Committee voted 7-2 to keep Bank Rate at 3.75%, with two members preferring a 25 basis point increase to 4.00%. Chief economist Huw Pill has stated publicly that he believes rates will need to increase this year to keep inflation down, noting that inflation has been above target for 53 of the 56 months he has been at the Bank. OIS pricing currently implies an 86% probability of no change at the 30 July meeting, a meaningful softening from the near-even odds of a hike that were priced in during the peak of the energy shock in March. With services inflation at 3.7%, a rise to 4.00% at a later meeting remains possible rather than the base case. The 30 July decision will be accompanied by a new Monetary Policy Report, making the vote split and the inflation fan chart the key sterling drivers next week rather than today's ECB event.

European Backdrop & EUR/USD:

The ECB meets today with its rate decision at 13.45 CET and President Lagarde's press conference at 14.30 CET. After June's 25bp hike - the ECB's first tightening since 2023, lifting the deposit rate to 2.25% - markets price roughly an 88% chance the Governing Council now holds and lets that move transmit. July is a non-projection meeting: unlike June, there are no fresh staff macroeconomic forecasts, which puts the entire signalling burden on the policy statement, the vote, and the Q&A. The scenario ING describes is familiar: sit tight today but leave the door open for action in September, a hike that is already nearly fully priced into markets. Lagarde's press conference is where market expectations will actually be shaped, and without fresh projections her words carry even more weight than usual.

For EUR/USD specifically, the pair has recovered to 1.1425 from Wednesday's 1.1414 close, sitting comfortably within the three-month range of 1.12-1.17 identified by analysts. The more interesting question is not the decision itself but why a hawkish ECB has done so little for the euro: EUR/USD remains stuck near 1.143, and whether a hold, a hawkish hold, or a second hike changes that runs through multiple fundamental factors beyond rates alone. The ECB-Fed rate differential is the key structural anchor: the ECB is currently the only major central bank actively raising rates while the Fed holds and most peers sit on their hands. That should be EUR-supportive, but the eurozone's anaemic growth outlook - GDP growth is forecast at just 0.8% for 2026, slightly below March projections - and the risk that Lagarde's language on September is deliberately non-committal are both capping EUR upside. A single phrase from Lagarde describing inflation risks as "tilted to the upside" can move Bund yields several basis points before the press conference is even finished, so the directional risk for EUR/USD is asymmetric: a hawkish confirmation of September pricing could push the pair toward 1.1480-1.1500, while a deliberately vague statement risks a retreat toward 1.1370. Treasurers with direct EUR/USD exposures should note that the decision window is 12.45-14.00 BST, after which liquidity thins into the US afternoon.

On the European political front, Bloomberg reported in early July that President Lagarde has not ruled out departing the ECB early to participate in French politics, telling Les Echos that "it's possible" she could leave early, adding "I believe that a European voice needs to be heard in the French presidential debate." While markets have largely discounted this as a tail risk for now, any escalation of that narrative at today's press conference Q&A would introduce fresh EUR uncertainty.

US Backdrop:

FOMC minutes from the June 16-17 meeting confirmed that participants generally noted inflation had increased further and remained well above the 2% objective, attributing increases to the lingering effects of tariffs. The next FOMC meeting is scheduled for 28-29 July, and policymakers are expected to leave rates unchanged while preserving the option to tighten further if inflation proves persistent. CME FedWatch currently assigns approximately 25% probability to a 25bp hike at the July meeting, a non-trivial tail that is keeping the dollar broadly supported and limiting the upside in GBP/USD. Today's US calendar includes weekly jobless claims and the Kansas City Fed manufacturing index; neither is a primary USD driver, but a significant miss on claims could briefly soften the dollar and provide a window for GBP/USD to test 1.3400.

Technical Picture:

GBP/USD: Resistance at 1.3400 (round number and Wednesday intraday high), then 1.3441 (Tuesday's weekly peak) and 1.3532 (17 July multi-month high). Support at 1.3350 (intraday base from 22 July), then 1.3309 (20 July low) and 1.3268 (mid-July consolidation floor).
GBP/EUR: Resistance at 1.1729 (Wednesday close), then 1.1767 (Tuesday high) and 1.1800 (psychological). Support at 1.1700 (round number), then 1.1660 (post-ECB risk scenario) and 1.1600 (mid-range).
EUR/USD: Resistance at 1.1446 (17 July high) and 1.1480 (hawkish Lagarde scenario). Support at 1.1400 (psychological), then 1.1370 (dovish Lagarde scenario) and 1.1320 (June consolidation base).
Outlook: All three pairs are in a holding pattern ahead of the ECB press conference; the directional break - whether EUR/USD pushes toward 1.1480 or retreats to 1.1370 - will cascade into GBP/EUR and, to a lesser extent, GBP/USD before the London close.

Today's Calendar:

The ECB press conference at 1.45pm BST is the single event that matters today; with no new staff projections published at this non-projection meeting, every word Lagarde uses on September and inflation risk will be parsed for its EUR implications.

Outlook:

The bias for GBP/USD remains modestly to the downside in the near term: softer UK CPI has reduced the probability of a BoE hike on 30 July to around 14% (OIS-implied), and unless Lagarde delivers a notably dovish surprise that weakens EUR broadly, the pair is likely to remain capped below 1.3400 into next week's BoE decision. The key risk scenario for treasurers is a hawkish Lagarde press conference that pushes EUR/USD sharply higher toward 1.1480, compressing GBP/EUR toward 1.1660-1.1680 and creating a materially less favourable entry point for those with EUR payables; conversely, a deliberately non-committal statement could see EUR/USD retreat and GBP/EUR recover toward 1.1750.

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.