GBP/USD + GBP/EUR Market Update

CPI Shock and FOMC Day Squeeze GBP/USD to Five-Week Lows as EUR/USD Holds Above 1.1550, Wednesday, 16 September 2026

GBP/USD: 1.3480 | GBP/EUR: 1.1670 | EUR/USD: 1.1551

The ONS August CPI release, published at 7.00am this morning, showed CPIH rising to 3.3% year-on-year, up from 3.1% in July, while core CPI held steady at 2.6%, unchanged from July. As expected, sharp rises in fuel prices pushed the headline rate higher. The data arrives with the MPC meeting tomorrow and the FOMC decision this evening, compressing all the major sterling and dollar risk events into a 36-hour window that will define the near-term direction of all three pairs.

Overnight & Market Tone:

GBP/USD fell to 1.3474 on 15 September, down 0.19% on the session, and our database has it consolidating around 1.3480 in early London trade, holding just above the five-week low printed yesterday. The FTSE 100 fell to a two-month low on Tuesday as another surge in oil prices drove UK borrowing costs higher, with the blue-chip index dropping 0.59% to 10,634.49 by mid-morning. Brent crude pushed above $108 a barrel as Middle East supply concerns intensified, adding to a roughly 20% rise since the start of September. Risk sentiment remains fragile ahead of the Fed, with the VIX at 16.46 and gilt yields elevated after Tuesday's sell-off. EUR/USD is steady near 1.1551, marginally firmer than Tuesday's 1.1537 trough, as the ECB rate differential provides a modest floor.

UK Data & Bank of England:

This morning's ONS release is the pivotal domestic input for tomorrow's MPC decision. CPIH rose to 3.3% in the 12 months to August, up from 3.1% in July. Core CPI, which strips out energy and food, remained at 2.6%, unchanged from July, suggesting the acceleration is predominantly energy-driven rather than broad-based. Services inflation was 3.4% in July, down from 3.6% in June; the August services reading will be closely scrutinised by the MPC as the more domestically sensitive gauge. The August data was widely expected to show price growth rising above 3%, as the UK dealt with high fuel and energy prices, with almost all economists agreeing that inflation will keep rising for the rest of 2026 as the economic consequences of the Iran conflict continue. On the MPC itself, the Bank held Bank Rate at 3.75% on 30 July on a 6-3 vote, with Megan Greene, Catherine Mann and Huw Pill voting to raise it to 4%. All 65 economists in a Reuters poll conducted 4-8 September expected the MPC to hold on 17 September; SONIA pricing implied a five-basis-point increase for the meeting, equivalent to roughly 20% odds of a full 25bp hike. However, the BoE Watch tool shows the next policy meeting is scheduled for 17 September, with the current market-implied probability of no change at 73%. A hotter-than-expected August CPI print risks nudging that probability toward a closer call, which would be sterling-supportive on the crosses but would also amplify gilt yield pressure.

European Backdrop & EUR/USD:

The ECB raised its deposit facility rate by 25 basis points to 2.50% on 10 September 2026 as an energy shock pushed inflation further above target. The new rates, including the main refinancing rate at 2.65% and the marginal lending rate at 2.90%, take effect today, 16 September. ECB President Christine Lagarde described the decision as unanimous and straightforward, while stressing that policy will be set meeting by meeting and that the Council is not pre-committing to any rate path. Headline inflation is now expected to average 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. Euro-area consumer prices rose to a three-year high of 3.3% in August, with GDP growth accelerating to 0.6% in the second quarter of 2026. The next ECB decision is not until 29 October, leaving EUR/USD to trade primarily on the Fed-ECB rate differential and energy-price dynamics in the interim.

For EUR/USD specifically, the pair has declined from around 1.1700 in mid-August to the current 1.1551, pressured by the dollar's broad advance ahead of today's FOMC. EUR/USD has been probing support near 1.1530-1.1540 after a multi-day cascade from the lower-high structure capped below 1.1650, having declined from 1.1700 in mid-August toward the 1.1500 area. Markets now price more tightening than the ECB's own baseline requires, leaving the euro's rate support exposed. The key driver for EUR/USD today is the Fed: a 25bp hike accompanied by hawkish dot-plot revisions (futures markets were pricing the fed funds rate rising to around 4.2% by December, per StreetStats) would likely push EUR/USD through 1.1530 support toward 1.1500. A hold, or a hike with a dovish statement, could see a sharp relief rally back toward 1.1600. As of market close on 14 September, futures markets were pricing a gradual increase to about 4.2% by December and roughly 4.6% by September 2027. Treasurers with direct EUR/USD exposures should treat the 7.00pm London announcement as the primary intraday event, with the press conference at 7.30pm carrying equal weight given the updated dot plot and Summary of Economic Projections.

US Backdrop:

Market-implied probability of a Fed rate hike at today's meeting stands at 91%, according to centralbank.watch's live OIS-derived tool. The current federal funds target range is 3.50%-3.75%, held since December 2025 under Chair Kevin Warsh; markets have moved to price a 0.25-point rise to 3.75%-4.00% as more likely than not, following Warsh's hawkish Jackson Hole speech on 28 August and a solid August jobs report. This meeting also includes updated economic projections, with the decision due at 2.00pm ET (7.00pm London) and the press conference at 2.30pm ET. The dollar index has held near a two-week high through the Asian session, and any surprise hold would represent the sharpest near-term downside risk for USD across all pairs.

Technical Picture:

GBP/USD: Resistance at 1.3510, then 1.3540 (last week's post-GDP high). Support at 1.3460, then 1.3430 (five-week low zone).
GBP/EUR: Resistance at 1.1700, then 1.1720. Support at 1.1640, then 1.1610 (August mid-range floor).
EUR/USD: Resistance at 1.1590, then 1.1615. Support at 1.1530 (recent intraday low), then 1.1500 (psychological and August trough).
Outlook: All three pairs are in compressed ranges ahead of the FOMC; a confirmed 25bp hike with hawkish projections would likely break GBP/USD below 1.3460 and EUR/USD below 1.1530, while a dovish surprise would unwind recent dollar gains sharply, with GBP/USD retesting 1.3540 and EUR/USD recovering toward 1.1600.

Today's Calendar:

The 7.00pm FOMC announcement is the dominant event; the updated dot plot and Warsh's guidance on the pace of further tightening will carry more market weight than the rate decision itself, which is already near-fully priced.

Outlook:

With a Fed hike near-certain and the MPC decision following tomorrow at noon, the sequencing of central bank risk is unusually compressed; GBP/USD and EUR/USD are both likely to remain range-bound through the London afternoon before the FOMC triggers a directional break this evening. The key tail risk for sterling is a hot August CPI reading (already confirmed this morning) combining with a hawkish Fed to push gilt yields higher and GBP/USD below 1.3430, while a Fed hold or a dovish statement alongside tomorrow's MPC hold could see both pairs recover sharply into the end of the week.

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.