GBP/USD + GBP/EUR Market Update

Sterling Firms on Stronger-Than-Expected GDP as Warsh Takes the Fed Helm; GBP/USD Recovers Toward 1.3514, EUR/USD Holds 1.1712 Ahead of ECB June Hike Debate, Thursday, 14 May 2026

GBP/USD: 1.3514 | GBP/EUR: 1.1539 | EUR/USD: 1.1712

Three distinct forces are shaping the three pairs this morning. The ONS confirmed that real UK GDP grew 0.6% in the three months to March 2026, with monthly GDP up 0.3% in March itself, services the primary driver. That data landed alongside the confirmation of Kevin Warsh as Fed Chair, which, combined with a blowout April US PPI print of 6.0% year-on-year against a 4.7% forecast, has kept the dollar broadly supported and capped any sharp sterling recovery. EUR/USD is holding just above 1.1700, caught between a hawkish ECB tilt and persistent USD demand.

Overnight & Market Tone:

Tech-led gains drove US equities to fresh all-time highs on Wednesday, while the blowout April PPI print and Warsh's confirmation reinforced higher-for-longer rate expectations; the dollar closed net higher against most major peers, and a $25 billion 30-year Treasury auction saw investors accepting yields approaching 5% for the first time since 2007. GBP/USD tested the 1.3500 area on Wednesday before recovering modestly into the Asian session; the pair has edged back toward 1.3514 in early London trade following the GDP release. WTI crude closed near $97.3 per barrel on Wednesday, with the unresolved Strait of Hormuz disruption continuing to anchor oil above the $95 area, keeping energy-driven inflation concerns front of mind. Risk sentiment is cautiously constructive in European pre-market, though gilt yields remain elevated and the FTSE 100 is expected to open broadly flat.

UK Data & Bank of England:

Today's GDP data is the dominant domestic release. Real GDP grew 0.6% in the three months to March 2026, with monthly GDP up 0.3% in March; services output grew 0.3% on the month, while production fell 0.2%. The quarterly outturn is above the IMF's recently revised 0.8% full-year growth projection, providing a modest positive surprise for sterling. The ONS also noted that February GDP growth was revised down to 0.4% from 0.5%, and January to flat from 0.1%. On inflation, the next ONS CPI release covering April 2026 is scheduled for 20 May at 7.00am, and will be the key input for the MPC's June deliberations. The most recent reading showed CPI at 3.3% in the 12 months to March 2026, up from 3.0% in February. Core CPI rose 3.1% year-on-year in March, down from 3.2%, while services inflation rose to 4.5% from 4.3%. At its April meeting, the MPC voted 8-1 to hold Bank Rate at 3.75%, with one member voting to raise to 4.0%. The Bank projected CPI at 3.1% in Q2, 3.3% in Q3, and rising further in Q4, and said it "stands ready to act as necessary" to keep inflation on track to meet the 2% target. The next MPC decision is due on 18 June 2026. OIS pricing currently implies the MPC holds at 3.75% in June, with the balance of risks tilted toward a further hold or even a hike rather than a cut, given the energy-driven inflation overshoot and the hawkish dissent already on the table.

European Backdrop & EUR/USD:

The ECB held its deposit facility rate at 2.0% on 30 April, noting that "upside risks to inflation and the downside risks to growth have intensified," with flash data showing eurozone CPI jumping to 3.0% in April, driven largely by energy costs. At the post-meeting press conference, ECB President Christine Lagarde said the decision to hold was unanimous, though policymakers debated various options including a possible hike, and that the ECB is "certainly moving away" from its baseline scenario. Deutsche Bank's chief European economist noted the April statement "does not pre-commit the ECB to hiking in June, but does not stop the ECB from hiking in June either." Since then, hawkish signals from ECB officials including Isabel Schnabel (7 May) and Martin Kocher (11 May) have bolstered expectations for action at the June meeting. Market pricing now implies a substantial probability of a move: trader consensus prices a 76.5% implied probability of a 25 basis point hike in the ECB deposit rate to 2.25% at the 11-12 June meeting, reflecting April eurozone CPI surging to 3.0% from 2.6% amid energy price spikes tied to the Iran conflict. Markets are fully pricing in three ECB rate hikes in 2026, with the first potentially arriving as early as June.

For EUR/USD, the pair is caught in a genuine tug-of-war. The hawkish ECB pivot is EUR-positive and has helped the pair recover from its post-CPI lows near 1.1700 seen on Wednesday; the euro area entered the current period of surging energy prices with inflation near the 2% target and the economy showing resilience, while longer-term inflation expectations remain anchored even as shorter-term expectations have risen significantly. Against that, the Warsh confirmation and the hot US PPI data reinforce the "no cuts in 2026" Fed narrative and sustain dollar demand. Traders largely expect the Fed to hold rates steady for the rest of the year, though the odds for a rate hike have risen to 20% for October and are pegged at 30% for December. The net result is that EUR/USD is consolidating in a tight range around 1.1712, with the ECB-Fed rate differential providing a floor but the dollar's inflation premium capping upside. Treasurers with direct EUR/USD exposures should note that a June ECB hike, if delivered, would likely push EUR/USD back toward the 1.1800-1.1850 area, while any softening in eurozone data or energy prices ahead of 11 June could see the pair retest 1.1650-1.1680.

US Backdrop:

Kevin Warsh has won Senate confirmation as the next Federal Reserve Chair, taking over at a time when soaring energy prices have put upward pressure on inflation; Powell's term as Chair ends on Friday 15 May. Warsh takes over with inflation above the Fed's 2% target for over five years, and Wednesday's April PPI data showed wholesale prices soaring 6.0% year-on-year, pushed up largely by higher energy prices. Warsh's first FOMC meeting as Chair is set for 16-17 June. The US calendar today is relatively light, with weekly jobless claims the main release; the market's attention will be on any early signals from Warsh regarding his policy framework and communication style.

Technical Picture:

GBP/USD: Resistance at 1.3560, then 1.3622 (recent pivot high per Dukascopy). Support at 1.3500 (psychological floor), then 1.3454 (30-day SMA area).
GBP/EUR: Resistance at 1.1560, then 1.1597 (2026 year-to-date high per exchange-rates.org). Support at 1.1510, then 1.1480.
EUR/USD: Resistance at 1.1750 (recent consolidation ceiling), then 1.1800. Support at 1.1680, then 1.1650.
Outlook: GBP/USD's recovery from the 1.3500 floor is encouraging but the pair needs a sustained close above 1.3560 to shift near-term momentum; EUR/USD's range between 1.1680 and 1.1750 is likely to persist until the 11 June ECB meeting provides directional clarity, while GBP/EUR remains well-supported in the 1.1510-1.1560 corridor given the BoE's hawkish hold posture relative to an ECB that may yet tighten.

Today's Calendar:

The US April Retail Sales print at 13.30pm is the key afternoon event; a weak reading would reinforce stagflation concerns and could weigh on the dollar, offering GBP/USD and EUR/USD modest relief, while a beat would cement the "higher for longer" narrative and pressure both pairs back toward recent lows.

Outlook:

The positive UK GDP surprise provides a near-term floor for GBP/USD around 1.3500, but the pair's ability to sustain a recovery above 1.3560 will depend on whether the Warsh-era Fed signals any dovish flexibility at its 16-17 June meeting; the risk scenario to watch is a hot UK April CPI print on 20 May, which could reignite BoE hike speculation and push GBP/EUR back toward the year-to-date high of 1.1597. For EUR/USD, the 11 June ECB decision is the pivotal event: a 25bp hike would likely lift the pair toward 1.1800-1.1850, while a hold accompanied by cautious language could see it retest support at 1.1650, and treasurers with unhedged EUR payables should consider using any near-term USD strength as an opportunity to layer in forward cover ahead of that date.

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.