GBP/USD + GBP/EUR Market Update

Ceasefire Extension Lifts GBP/USD Back Toward 1.3450 as Dollar Softens, EUR/USD Recovers Above 1.1640, and Brent Slides to $91-92 on Deal Optimism, Friday, 29 May 2026

GBP/USD: 1.3425 | GBP/EUR: 1.1532 | EUR/USD: 1.1642

All three pairs enter Friday's session in a cautiously risk-on posture, with the dollar on the back foot after Bloomberg reported that the US and Iran had tentatively agreed to extend the ceasefire, though President Trump had not yet formally approved the deal. The dollar fell against all major peers on that report, with the Bloomberg Dollar Spot Index 0.2% lower as of mid-morning New York time on Thursday, reversing an earlier advance driven by overnight clashes. Governor Bailey is scheduled to speak today, making his remarks the primary domestic event risk for GBP positioning into the weekend.

Overnight & Market Tone:

GBP/USD held ground and was trading around 1.3450 during Asian hours on Friday, edging higher as safe-haven demand for the dollar faded following reports that the US and Iran had tentatively agreed to a 60-day ceasefire extension. The euro rallied to trade above the $1.1650 mark, with risk-sensitive currencies leading gains across the G10 complex. Brent crude has retreated sharply from its recent highs, trading around $91.53 with today's range between $91.43 and $93.44, reflecting the partial unwinding of the geopolitical risk premium. The VIX closed at 15.74 on Thursday, down 3.38%, with the S&P 500 gaining 0.58% to 7,563. The US 10-year Treasury yield fell to 4.455% at Thursday's close, down 2.6bp on the day, consistent with the softer dollar and easing geopolitical risk premium. UK 10-year gilt yields had already fallen to 4.85% earlier in the week, their lowest since 20 April, as traders trimmed BoE rate-hike bets to around 40bp of tightening by year-end. FTSE 100 futures point to a modestly firmer open, consistent with the improved risk tone.

UK Data & Bank of England:

At its meeting ending 29 April, the MPC voted 8-1 to maintain Bank Rate at 3.75%, with one member (chief economist Huw Pill) voting to increase it by 25bp to 4%. The BoE projected CPI at 3.1% in Q2, 3.3% in Q3, and rising somewhat further in Q4, driven by higher energy and food prices. The MPC's internal divisions remain the key sterling variable. Governor Bailey told lawmakers last week that the rise in market interest rates since the onset of the Iran conflict has afforded the Bank more time to assess the economic ramifications, noting that higher mortgage borrowing costs illustrate how investors have already adjusted their positions. External member Swati Dhingra suggested rate hikes might be avoided if moderate second-round energy price effects materialise, while Catherine Mann warned that persistent high inflation into late 2026 could embed in 2027 wage deals. Bailey has also said that what happens next will "depend on the size and duration of the energy price shock", declining to give a "cast iron assurance" there will be no rate increase. OIS pricing implies roughly 40bp of tightening by year-end, equivalent to approximately a 50% probability of a hike at the 18 June meeting. A recent Reuters poll found a narrow majority of economists did not expect the BoE to raise rates this year, though more than a third forecast at least one increase. Today's Bailey speech is therefore the most important near-term signal for GBP/EUR positioning: any pushback against hike pricing would weigh on sterling, while a more hawkish tone could provide a modest lift.

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%, all held unchanged at the 30 April meeting. The Governing Council noted that upside risks to inflation and downside risks to growth have intensified, with the war in the Middle East leading to a sharp increase in energy prices. ECB meeting minutes confirmed that a number of members viewed the April hold as a close call and indicated they would have supported a hike had it been proposed, warning that the energy-driven supply shock was proving more persistent than previously expected. Markets currently price an 86% probability of a 25bp hike at the 11 June meeting. MUFG Research maintains a call for two ECB rate hikes, now expected at the June and September meetings. ECB President Lagarde noted at the April press conference that "in six weeks we will be able to make a more informed decision", signalling that 11 June is when the data, not the rhetoric, decides.

For EUR/USD specifically, the pair has recovered from Thursday's lows to trade back above 1.1640 this morning, supported by the dual tailwinds of dollar softness and the near-certain ECB hike premium. EUR/USD has recovered from its 15 March low of 1.1435 and traded as high as 1.2019 on 27 January, giving a 5.1% range across 2026 so far. The current level of 1.1642 sits in the lower half of the year's range, and the pair faces a structural tug-of-war: the ECB-Fed rate differential is shifting in the euro's favour as the ECB moves toward a hike while the Fed holds, but the Strait of Hormuz closure continues to weigh on eurozone growth sentiment. The April FOMC held rates at 3.50-3.75% on an 8-4 vote, the most dissents since October 1992, and with Warsh now in the chair, the 16-17 June FOMC will deliver the first formal market read on the new leadership's rate path. Warsh has signalled openness to cuts earlier than consensus and a preference for less explicit forward guidance, which, layered on a fractured committee, implies a narrowing dollar yield premium against both the BoE and ECB through H2. For treasurers with direct EUR/USD exposures, the near-term bias is modestly EUR-positive, but the deal's fragility means a headline breakdown could rapidly reverse the move. A sustained break above 1.20 requires either an ECB hike confirmed on 11 June or a clear Iran de-escalation pulling Brent below $90; the base case range for Q2-Q3 remains 1.15-1.19.

US Backdrop:

Persistent inflation pressures have anchored the federal funds rate at 3.50-3.75% through May 2026, with the April FOMC minutes showing core PCE near 3.2% and unemployment around 4.3%. Kevin Warsh officially took office as the 17th Chair of the Federal Reserve on 22 May and is scheduled to chair his first FOMC policy meeting on 16-17 June. Markets currently price a 65% probability of a hold at that meeting, with the June dot plot the first formal read on Warsh's rate path. Today's US calendar is light ahead of the long weekend, with the April PCE deflator the key data point; any upside surprise would reinforce the hold narrative and provide a modest dollar floor.

Technical Picture:

GBP/USD: Resistance at 1.3450 (Asian session high), then 1.3475 (Tuesday's high) and 1.3612 (downward trendline break area). Support at 1.3413 (22 May low), then 1.3375 (20 May low).
GBP/EUR: Resistance at 1.1542 (Thursday's close), then 1.1578 (Tuesday's high) and 1.1600 (round number). Support at 1.1510 (recent week low) and 1.1480 (mid-May trough).
EUR/USD: Resistance at 1.1650 (Thursday's intraday high), then 1.1700 (psychological level) and 1.1733 (12 May high). A pivot point sits around 1.1575, with support at 1.1600 (recent base) and 1.1435 (15 March year-to-date low).
Outlook: All three pairs are biased modestly in favour of the dollar's counterparts while the ceasefire extension narrative holds, but the absence of Trump's formal sign-off and the Strait's continued closure mean the risk of a sharp reversal on any negative headline remains elevated into the weekend.

Today's Calendar:

The Eurozone CPI flash estimate and the US PCE deflator are the twin data risks today; a hotter-than-expected eurozone print would reinforce the 11 June ECB hike narrative and support EUR/USD, while a firm US PCE reading could partially offset the dollar's overnight losses.

Outlook:

The path of least resistance into the weekend is for GBP/USD to consolidate in the 1.3400-1.3475 range and EUR/USD to hold above 1.1600, provided the ceasefire extension narrative is not contradicted by a fresh geopolitical headline; the key risk scenario is a Trump rejection of the tentative deal, which would likely push Brent back above $95, revive safe-haven dollar demand, and drag both pairs sharply lower. Traders will closely follow Bailey's speech on Friday for any recalibration of the 18 June BoE hike probability, which at roughly 50/50 leaves GBP/EUR acutely sensitive to any shift in tone from Threadneedle Street.

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.