GBP/USD + GBP/EUR Market Update

MPC Decision Day: GBP/USD Steadies Near 1.3388 as Hawkish Fed Dot Plot Keeps Dollar Bid and EUR/USD Slides to 1.1473, Thursday, 17 September 2026

GBP/USD: 1.3388 | GBP/EUR: 1.1669 | EUR/USD: 1.1473

GBP/USD has drifted lower to 1.3388 in early London trade, extending Wednesday's post-FOMC slide from around 1.3469, as the ECB's deposit rate hike to 2.50% on 10 September and the Fed's matching 25bp move to 3.75%-4.00% on Wednesday have left EUR/USD trading just above 1.1450, its weakest since early August. The MPC decision at 12.00pm is the single most important domestic event of the day; the vote split and any shift in the hawkish minority will drive the afternoon's sterling move.

Overnight & Market Tone:

US equity futures recovered after the Fed delivered its first rate hike since 2023, with S&P 500 futures rising 0.6% and Nasdaq 100 futures advancing 0.7%. European markets were set for a firmer open, while Asian equities added 0.3%, helped by modest stabilisation in global duration and signs that oil supply concerns are starting to ease. In London, GBP/USD was quoted at 1.3392 and GBP/EUR at 1.1663 as of early morning trade, with the FTSE 100 at 10,688. Brent crude is trading in a range of $104.21-$106.00 today, easing from the $108-$109 highs seen earlier this week. Risk sentiment is cautiously constructive, but the dollar's post-FOMC bid is capping any meaningful GBP recovery.

UK Data & Bank of England:

UK CPI inflation rose to 3.1% in August from 2.9% in July, released by the ONS on Wednesday morning. CPIH, the broader measure including owner-occupiers' housing costs, rose 3.3% in the 12 months to August, up from 3.1% the previous month, with a monthly rise of 0.5%. The largest upward contribution came from transport, particularly motor fuels. The Bank of England had projected CPI peaking at around 3.2% in Q4 2026, but with oil and gas prices elevated, the outturn could exceed that. Hargreaves Lansdown's senior investment analyst noted that higher inflation adds weight to the three MPC members who favour a hike, and that July GDP growth of 0.4% against a 0.0% forecast makes a rise to 4.00% before year-end "even more likely."

Today's 12.00pm decision is the focal point. Bank Rate has held at 3.75% for five consecutive meetings, but this decision carries more genuine uncertainty than any of those prior holds. The MPC voted 6-3 to hold at the July meeting; Huw Pill, Megan Greene and Catherine Mann all voted to raise to 4.00%, reflecting growing concern that higher energy prices could lead to more persistent inflation. That is one more hawkish dissent than June's 7-2 and two more than April's 8-1, meaning the minority pushing for higher rates has grown at three consecutive meetings. A Reuters poll of economists conducted in August found that nearly 90% (56 of 64) expect the MPC to leave rates unchanged at 3.75% for the rest of the year. Prediction markets are broadly consistent with a hold as the base case, though the vote split and any change in language around the inflation trajectory will be scrutinised closely for signals ahead of the 5 November decision. The September meeting does not carry a Monetary Policy Report; the next full forecast round lands with the November decision.

European Backdrop & EUR/USD:

The ECB raised its deposit rate by 25 basis points to 2.50% on 10 September, its second hike of 2026. President Christine Lagarde described the decision as unanimous and straightforward, while stressing that policy will be set meeting by meeting and that the Governing Council is not pre-committing to any rate path. Inflation forecasts for 2027 and 2028 were revised up to 2.5% and 2.1% respectively, while the growth outlook was upgraded to 0.9% for 2026 and 1.4% for 2027. Markets are now pricing the ECB deposit rate at around 2.9% by December, with the rate seen reaching 3.4% by November 2027, fully pricing a third hike and implying roughly a 50% probability of a fourth. Eurozone final August inflation is due at 09.00am London time today, with core forecast at 2.4%.

EUR/USD is the pair most directly caught in the crossfire of the two central bank cycles. EUR/USD has fallen every session since the ECB raised rates on 10 September. Both central banks moved a quarter point inside seven days, so the gap between the Fed's 3.875% midpoint and the ECB's 2.50% is 1.375 percentage points, exactly what it was before either meeting. The rate differential has therefore not shifted in the euro's favour; what has shifted is the dollar's forward path. Per the Fed's updated Summary of Economic Projections, the median federal funds rate projection for 2026 rose to 4.1%, up from 3.8% in June, and the 2027 median climbed to 4.1% from 3.6%. A hawkish dot plot alongside Chair Warsh's tougher press conference tone reinforces the case for yields staying elevated near term; with the Fed's own median guidance now aligned with the more hawkish end of Wall Street's forecasts, markets are likely to keep pricing a real chance of a second 2026 hike in December. For treasurers with direct EUR/USD exposures, the pair is now trading below its mid-August launch point for the last rally, and the next scheduled ECB catalyst is not until 29 October, leaving EUR/USD to trade primarily on Fed cross-currents and today's MPC outcome in the near term.

US Backdrop:

The Federal Reserve raised its target interest-rate range by 25 basis points to 3.75%-4.00% on Wednesday, but the accompanying dot plot suggested that policymakers may not be finished tightening. The 10-year Treasury yield moved back above the key 5% mark following the decision and Warsh's comments on persistent inflation risks, with the benchmark at 5.016% and the 2-year yield up more than 7 basis points at 4.738%. Chair Warsh's press conference tone was read as more hawkish than the statement, with Warsh noting that summer inflation readings do not show meaningfully improved underlying trends. US retail sales for August jumped 6.0% year-over-year, well above the 4.7% forecast, providing further justification for the hawkish pivot in the dot plot. The US calendar today is lighter, with no tier-one data releases scheduled, leaving the dollar to consolidate its post-FOMC gains.

Technical Picture:

GBP/USD: Resistance at 1.3420 (yesterday's session high), then 1.3469 (Wednesday's open) and 1.3500 (psychological). Support at 1.3370 (intraday low), 1.3340 (early August base) and 1.3300 (round number).
GBP/EUR: Resistance at 1.1689 (recent cap identified by market analysts), then 1.1721 (CIBC target). Support at 1.1650 (reclaimed shelf and 21-day moving average), with the 100-day moving average at 1.1630 beneath it and rising.
EUR/USD: EUR/USD is trading just above 1.1450, under both of its long-run averages and below where it was before the mid-August jump that started the last rally. Resistance at 1.1507 (near-term pivot noted by analysts), then 1.1550. Support at 1.1450 (current floor), 1.1400 (round number).
Outlook: GBP/USD faces a binary risk at 12.00pm; a hold with an unchanged 6-3 vote is likely to leave the pair range-bound near 1.3370-1.3420, while any shift to a 5-4 split or an outright hike would drive a sharp move toward 1.3500 and above. EUR/USD's technical structure remains fragile while UST 10-year yields hold above 5%.

Today's Calendar:

The 12.00pm MPC announcement is the dominant event; the vote split and any change in the MPC's language on the inflation trajectory will determine whether GBP/USD can recover toward 1.3450 or extends its slide toward 1.3340.

Outlook:

The path of least resistance for GBP/USD remains lower while the Fed's hawkish dot plot keeps UST yields above 5% and the MPC is expected to hold; a surprise hike or a widening of the dissenting minority to four members would be the clearest catalyst for a sterling recovery toward 1.3480-1.3500. EUR/USD faces a similar gravitational pull from the dollar, with the pair's inability to hold above 1.1500 suggesting that the 1.1400 level will be tested if today's eurozone CPI confirms the energy-driven inflation narrative and reinforces the case for further Fed tightening before year-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.