GBP/USD + GBP/EUR Market Update

Hot US CPI Lifts USD Broadly as Gilt Yields Hold Above 5.1% and Warsh Chair Vote Looms; GBP/USD Tests 1.3495, EUR/USD Slides Toward 1.1700, Wednesday, 13 May 2026

GBP/USD: 1.3495 | GBP/EUR: 1.1528 | EUR/USD: 1.1706

Three forces are converging to weigh on both GBP and EUR this morning: a hotter-than-expected US inflation print that has all but removed any prospect of Fed rate cuts this year, UK 10-year gilt yields above 5.1%, their highest since July 2008, driven by political instability and renewed inflation concerns, and the imminent transition at the top of the Federal Reserve. EUR/USD is on the back foot following Tuesday's decline and is falling toward 1.1700 in the European session, with broad-based dollar strength after the hot April inflation data weighing on the pair. The ONS March GDP release at 07.00am this morning is the key domestic data point to watch.

Overnight & Market Tone:

GBP/USD is struggling to capitalise on the previous day's late bounce from the 1.3500 psychological mark, a nearly two-week low, and remains depressed in early European trading, with UK political turmoil and inflation threats propelling gilt yields and acting as a drag on sterling. UK 10-year gilt yields climbed above 5.1%, reaching their highest point since July 2008, as political instability deepens, with over 70 Labour MPs urging Prime Minister Starmer to resign following the party's poor performance in last week's local elections. Concerns persist over the fragile US-Iran ceasefire, with Brent crude rising above $105 a barrel after President Trump dismissed Iran's latest response to peace proposals as unacceptable, prompting investors to increase bets on further Bank of England rate hikes, with markets now pricing in nearly three additional increases before year-end. The ECB reference rate for EUR/USD was fixed at 1.1738 on 12 May 2026, with the pair drifting lower overnight toward the 1.1700 area as the dollar bid extended into the Asian session.

UK Data & Bank of England:

The ONS publishes the March monthly GDP estimate at 07.00am today. Real GDP grew by 0.5% in the three months to February 2026, following a growth of 0.3% in the three months to January (revised up from 0.2%), with no growth in the three months to December 2025. Consensus for today's March print is for a modest positive reading, though recent UK GDP growth forecasts have been adjusted downwards, reflecting the effects of the Middle East conflict, with the Treasury's April 2026 survey of independent forecasts showing an average GDP growth forecast of 0.6% for 2026, down from 0.9%. On inflation, CPI rose by 3.3% in the 12 months to March 2026, up from 3.0% in February, with core inflation at 3.1% in March and services inflation at 4.5%, up from 4.3% in February. The BoE has flagged that CPI was projected to be 3.1% in Q2, 3.3% in Q3 and "to rise somewhat further in Q4", due to higher energy and food prices. At its April meeting, the MPC voted by a majority of 8-1 to maintain Bank Rate at 3.75%, with one member voting to increase Bank Rate by 0.25 percentage points to 4%. The MPC noted that CPI inflation has increased to 3.3% and is likely to be higher later this year as the effects of higher energy prices pass through, with a risk of material second-round effects in price and wage-setting, though the labour market continues to loosen and a weakening economy could contain inflationary pressures. The next scheduled MPC meeting result will be announced on 18 June. OIS pricing, consistent with markets pricing in nearly three additional rate increases by year-end, has shifted materially hawkish relative to the cuts-biased path priced as recently as March, reflecting the energy shock and political risk premium now embedded in gilts.

European Backdrop & EUR/USD:

At its 30 April 2026 meeting, the ECB kept its main interest rates unchanged, with the deposit rate left at 2.0%, having cut rates eight times from June 2024 to June 2025. The ECB said that the Middle East conflict would push up near-term inflation. Iran de-escalation has materially shifted ECB pricing, with markets now pricing just 16bp of hikes for the June meeting, down from a near-certain 25bp before the framework MoU. The ECB's next scheduled policy meeting ends on 11 June. On the eurozone data front, the UK services PMI was 52.7 versus Germany at 46.9, France at 46.5 and the bloc as a whole at 47.6, underlining the relative resilience of UK services activity against a backdrop of weak continental European business sentiment. EU inflation was 2.8% in March, up from 2.1% in February, keeping the ECB in a cautious holding pattern ahead of the June meeting.

For EUR/USD specifically, the pair has retreated sharply from the 1.1747 level seen in yesterday's report, pressured by the combination of the hot US CPI print and a firmer dollar. The annual US inflation rate accelerated to 3.8% in April 2026, the highest since May 2023, coming above forecasts of 3.7% as the oil shock triggered by the war with Iran continues to push prices higher. Traders moved further away from expecting any Federal Reserve interest rate cuts and began anticipating a higher probability that the next move would be a hike; following the hotter-than-expected inflation report, market pricing took virtually any chance of a cut off the table between now and the end of 2027, with a better than 1-in-3 chance of an increase by year-end priced in. With the ECB on hold at 2.0% and the Fed at 3.5%-3.75%, the rate differential remains substantially in the dollar's favour, limiting EUR/USD upside. The pair is now testing the 1.1700 area, a level that analysts identify as an estimated pivot point for EUR/USD. A sustained break below 1.1700 would open the way toward 1.1600, while any softening in US data or Middle East de-escalation could see a recovery toward 1.1750-1.1800. Treasurers with direct EUR/USD exposures should note that the pair has now retraced roughly 40 pips from Monday's 1.1747 close and is approaching the lower end of its recent two-week range.

US Backdrop:

The consumer price index rose at a seasonally adjusted 0.6% for the month, putting the one-year pace at 3.8%, the highest since May 2023; excluding food and energy, core CPI increased 0.4% and 2.8% respectively, keeping inflation well above the Federal Reserve's 2% goal. The latest inflation reading reinforces expectations that the Federal Reserve will keep interest rates unchanged for a while. The dominant near-term USD catalyst is the Senate's expected confirmation vote on Kevin Warsh as Fed Chair today: Warsh has been confirmed by the Senate to join the Federal Reserve's Board of Governors, with the vote passing 51-45 on Tuesday, and the next step is to confirm him for a four-year term as chair, with the vote expected as soon as Wednesday, ahead of the end of current Chair Jerome Powell's term on Friday. Warsh says he plans "regime change" at the Fed, including tightening its coordination with the Treasury Department and setting it on course for a smaller balance sheet. Markets are watching closely for any signal on the policy direction under the new leadership, with the USD likely to remain bid on uncertainty.

Technical Picture:

GBP/USD: Resistance at 1.3560 (intraday recovery high from Tuesday), then 1.3610 (Bollinger upper band area) and 1.3622 (key horizontal resistance). Support at 1.3500 (psychological level, recent two-week low), then 1.3454 (30-day SMA area).
GBP/EUR: Resistance at 1.1560 (Tuesday high), then 1.1580 and 1.1610. Support at 1.1500 (round number), then 1.1480.
EUR/USD: Resistance at 1.1738 (ECB reference fix from 12 May), then 1.1747 (Monday close) and 1.1800 (psychological). Support at 1.1700 (pivot area), then 1.1650 and 1.1600.
Outlook: The GBP/USD daily chart shows a sustained bullish trend with a rising 30-day SMA currently at 1.3454; a decisive breakout and hold above 1.3622 would likely clear the path for a retest of the February peak near 1.3850. However, with the dollar bid reinforced by the CPI print and the Warsh confirmation vote today, the near-term bias for both GBP/USD and EUR/USD is to the downside, with 1.3500 and 1.1700 as the respective lines in the sand.

Today's Calendar:

The ONS March GDP print at 07.00am is the primary sterling catalyst of the morning session; a reading below consensus would compound the political and gilt-yield pressures already weighing on GBP/USD, while a beat could offer a brief recovery toward 1.3540-1.3560.

Outlook:

The near-term bias across all three pairs is for continued USD strength, with GBP/USD likely to remain range-bound between 1.3450 and 1.3560 and EUR/USD consolidating around the 1.1700 pivot, unless today's ONS GDP data materially surprises to the upside or the Warsh confirmation triggers an unexpected dovish signal. The key risk scenario for sterling is a combination of a soft GDP print and a further escalation in the Labour leadership crisis, which could push GBP/USD through 1.3450 and test the 30-day SMA; for EUR/USD, a break below 1.1700 on a hot PPI print would open the way toward 1.1650, while any Middle East de-escalation news remains the primary upside catalyst for both pairs.

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.