GBP/USD + GBP/EUR Market Update

Sterling Stabilises After CPI-Driven Slide as Flash PMIs and FOMC Minutes Digest Shapes the Day, Thursday, 21 May 2026

GBP/USD: 1.3430 | GBP/EUR: 1.1571 | EUR/USD: 1.1607

Sterling enters Thursday's session attempting to consolidate above 1.3420 after Wednesday's sharp drop below 1.3381 on the back of April CPI printing at 2.8% year-on-year, well below the 3.0% consensus. Markets are now navigating the data corridor between the completed Powell-to-Warsh Fed leadership handover and new Chair Warsh's first FOMC meeting on 16-17 June, with yesterday evening's release of the April FOMC minutes a key input for USD direction this morning. The dominant event risk for London hours today is the 09.00am S&P Global flash PMI release for both the UK and the eurozone, which will set the tone for GBP/USD and EUR/USD into the afternoon US session.

Overnight & Market Tone:

GBP/USD traded in a narrow 1.3415-1.3445 range overnight, recovering modestly from Wednesday's intraday low near 1.3381 as the initial CPI shock faded and some short covering emerged. GBP/EUR held close to 1.1571, broadly unchanged on the session, as the euro itself drifted slightly softer against the dollar. US equity futures are pointing modestly lower this morning, with S&P 500 futures off around 0.3% and the VIX edging up to approximately 17.6, suggesting a cautious but not alarmed risk tone. FTSE 100 futures are indicating a marginally firmer open near 10,388, with Brent crude futures around $110-111 per barrel, still elevated but slightly off recent highs. UK 10-year gilt yields are holding near 5.07%, having pulled back from last week's 18-year highs above 5.2% after the soft labour market data earlier this week scaled back some BoE hike expectations. US 10-year Treasury yields are around 4.57%, with the Bund trading near 3.0%.

UK Data & Bank of England:

Wednesday's ONS April CPI print of 2.8% year-on-year (consensus: 3.0%, prior: 3.3%) is the defining data event of the week for sterling. The undershoot was broad-based, with energy base effects and softer services inflation both contributing. The reading materially complicates the case for a BoE rate hike at the 18 June MPC meeting. At its April meeting, the MPC voted 8-1 to hold Bank Rate at 3.75%, with chief economist Huw Pill the sole dissenter in favour of a 25bp increase to 4.00%. Governor Bailey has said that what happens next will "depend on the size and duration of the energy price shock," stopping short of ruling out a hike. Deputy Governor Breeden has taken a more cautious line, telling the FT "we don't need to rush," adding that the MPC is "in a good place to be able to watch what's happening in the economy." April payrolls fell by 100,000, the largest drop since May 2020, while unemployment rose to 5% and wage growth slowed to 3.4%; markets now anticipate only two BoE rate increases by December. With CPI now printing below the 3.0% consensus, OIS pricing for the 18 June meeting has shifted firmly towards a hold, with a hike now a minority probability. Today's flash composite PMI (consensus approximately 51.7, down from April's final reading of 52.6) is the next key input: a print below 51.0 would reinforce the hold narrative and add fresh downside pressure to GBP/USD, while a resilient reading above 52.0 could partially offset the CPI disappointment. Friday's retail sales print, where consensus is for a 0.6% month-on-month contraction, is the other near-term catalyst for sterling.

European Backdrop & EUR/USD:

The ECB's deposit facility rate remains at 2.00%, with the main refinancing rate at 2.15% and the marginal lending facility at 2.40%, following the unanimous hold at the 30 April meeting. At the post-meeting press conference, ECB President Lagarde confirmed the decision to hold was unanimous, though policymakers debated various options including a possible hike, with the discussion centred on the fact that the ECB is "certainly moving away" from its baseline scenario. The ECB noted that "upside risks to inflation and the downside risks to growth have intensified," with flash data showing eurozone inflation jumping to 3.0% in April, driven largely by energy costs. Markets are pricing approximately an 86% probability of a 25bp hike at the 11 June meeting, though that pricing has been volatile and sits closer to 75-80% on some measures following recent data. The eurozone composite PMI fell to 48.6 in April from 50.7 in March, with the services sector (47.4) bearing the brunt of the war-driven energy cost shock. Today's May flash eurozone PMI (09.00am, consensus around 49.5-50.0) is therefore critical: a further contraction reading would intensify the ECB's stagflationary dilemma and could reduce the probability of a June hike, which would be EUR-negative. A surprise recovery above 50.0 would reinforce the hike case and provide EUR/USD support.

EUR/USD is trading at 1.1607 this morning, having recovered from Wednesday's intraday lows near 1.1580 as the softer UK CPI briefly boosted the euro on the cross. The pair remains well within its recent 1.1580-1.1650 range and is caught between two competing forces: a still-hawkish ECB pricing in a June hike, and a dollar that is finding renewed support from the fractured but firmly on-hold Fed and elevated US inflation. The Fed held the funds rate at 3.50-3.75% for a third consecutive meeting in April, in an 8-4 vote that marked the first time since October 1992 that four officials dissented against a FOMC decision. Kevin Warsh was confirmed as Fed Chair on 13 May in a 54-45 Senate vote, with his first FOMC meeting on 16-17 June; the April minutes released yesterday represent the last complete record of committee deliberations under the previous leadership structure. For EUR/USD, the key near-term driver is the relative trajectory of ECB versus Fed policy: if the ECB hikes on 11 June while the Fed holds again on 16-17 June, the rate differential narrows by 25bp and EUR/USD should find support towards 1.1700 and above. A second risk remains: Trump has threatened "much higher" tariffs on EU goods unless the bloc eliminates its own tariffs on US products by 4 July, and a breakdown in EU-US trade talks would be euro-negative. Treasurers with direct USD/EUR exposures should note that EUR/USD has been trading in a 1.1580-1.1730 range over the past two weeks; a confirmed break above 1.1650 on a strong eurozone PMI or hawkish ECB commentary would open the way towards 1.1700-1.1750, while a weak PMI print and a hawkish reading of the FOMC minutes could retest 1.1560-1.1580 support.

US Backdrop:

FOMC minutes from the April meeting, released yesterday evening, showed that many participants indicated they would have preferred removing the easing bias from the post-meeting statement, though several highlighted it would likely be appropriate to lower rates once disinflation is firmly back on track or if clear labour market weakness emerges. April CPI came in at 3.8% year-on-year and April non-farm payrolls showed 115,000 jobs added with unemployment at 4.3%, a combination that keeps the Fed firmly on hold. April PCE and the second GDP estimate are due on 28 May, alongside May non-farm payrolls on 5 June, forming the primary data set that will shape how markets read the Warsh Fed's opening position. Today's US flash PMI and weekly jobless claims (consensus approximately 210,000) are the near-term USD catalysts.

Technical Picture:

GBP/USD: Resistance at 1.3450, then 1.3490 and 1.3530. Support at 1.3380 (Wednesday's CPI low), then 1.3340 and 1.3300.
GBP/EUR: Resistance at 1.1600, then 1.1630 and 1.1660. Support at 1.1540, then 1.1510 and 1.1480.
EUR/USD: Resistance at 1.1650, then 1.1700 and 1.1735. Support at 1.1580, then 1.1550 and 1.1510.
Outlook: GBP/USD's failure to hold above 1.3450 after Wednesday's CPI print leaves the pair in a fragile consolidation; a weak UK flash PMI today would expose the 1.3340-1.3380 support zone, while EUR/USD's near-term direction hinges on whether today's eurozone PMI can hold the pair above 1.1580 ahead of the 11 June ECB decision.

Today's Calendar:

The 09.00am simultaneous release of UK and eurozone flash PMIs is the single most important event of the day, with the potential to move all three pairs by 50-80 pips on a significant surprise in either direction.

Outlook:

The path of least resistance for GBP/USD remains modestly lower in the near term: Wednesday's CPI undershoot has reduced the BoE hike premium that had supported sterling since the Middle East energy shock began, and any further softening in today's PMI would reinforce that repricing towards the 1.3340-1.3380 zone. For EUR/USD, the balance of risk is more symmetrical: a eurozone PMI recovery above 50.0 combined with hawkish ECB commentary ahead of 11 June could push the pair back towards 1.1700, but a second consecutive contraction reading would revive stagflation concerns and cap any euro rally, keeping the pair anchored in the 1.1560-1.1650 range through month-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. Vantry Capital Ltd is authorised and regulated by the Financial Conduct Authority.