GBP/USD + GBP/EUR Market Update

GBP/USD Extends Friday's Gains Above 1.3460 as Iran Ceasefire Extension Lifts Risk Appetite, EUR/USD Holds Near 1.1657 Ahead of Flash CPI, and Gilt Yields Ease Toward 4.80%, Monday, 01 June 2026

GBP/USD: 1.3460 | GBP/EUR: 1.1547 | EUR/USD: 1.1657

All three pairs enter the first trading day of June with a modest risk-on tailwind, carried over from Friday's session after reports that US and Iranian negotiators reached a memorandum of understanding to extend the ceasefire by 60 days and allow nuclear talks to continue. UK 10-year gilt yields hovered near 4.80% at the end of May, on track for a 19-basis-point monthly decline, as cautious optimism over a potential US-Iran agreement helped ease inflation concerns, with reports that Washington and Tehran had agreed on a 60-day ceasefire extension, though President Trump has yet to approve the memorandum of understanding. The key risk for today is whether that approval materialises; any rejection would likely reverse the mild dollar softness and weigh on GBP/USD and EUR/USD simultaneously.

Overnight & Market Tone:

EUR/USD traded slightly lower to near 1.1645 during the Asian session on Monday, facing marginal selling pressure as the US dollar ticked up, with investors awaiting key US economic releases this week, especially the Non-Farm Payrolls data for May. GBP/USD has held above 1.3460 in early London trade, consistent with the database spot, as the Iran ceasefire narrative continues to cap safe-haven dollar demand. Gilt markets drew additional support from UK Prime Minister Keir Starmer's Labour Party suffering local election losses that were not as severe as initially feared, while a cooling labour market, softer-than-expected inflation, and signs of slowing economic activity led traders to scale back expectations for a Bank of England rate hike. European equity futures point modestly higher at the open, consistent with the broader risk-on tone, though volumes are expected to be thinner given the US Memorial Day holiday on Monday.

UK Data & Bank of England:

UK CPI fell to 2.8% in the year to April, down from 3.3% in March, with the main source of the fall being lower household energy bills in April compared with a year before. While headline CPI fell, core inflation (excluding food and energy) eased only slightly to 3.1% from 3.2%, and persistent rises in energy costs are expected to filter through to the wider inflation basket as firms pass on energy and transport costs. The April CPI print was materially softer than the BoE's own Q2 projection of 3.1%, providing some breathing room for the MPC ahead of its 18 June decision.

At its meeting ending on 29 April 2026, the MPC voted 8-1 to maintain Bank Rate at 3.75%, with one member voting to increase Bank Rate by 0.25 percentage points to 4%. Governor Andrew Bailey said what happens next with interest rates will "depend on the size and duration of the energy price shock", adding that he cannot give a "cast iron assurance" there will not be a rate increase, even if oil prices drop. Deputy Governor Sarah Breeden told the FT "we don't need to rush," while Chief Economist Huw Pill - the sole dissenter in favour of a hike - compared the Bank's navigation to the Apollo 13 crew steering back to earth by manual course corrections. Recent weak labour market data, softer-than-expected inflation, and signs of slowing economic activity had led traders to scale back their bets on a Bank of England rate hike, with markets fully pricing in just one increase this year. OIS pricing implies roughly a 40-50% probability of a 25bp hike at the 18 June meeting, with the outcome highly sensitive to this week's US data and any further Iran headlines. The final S&P Global UK Manufacturing PMI for May is due today, with the flash reading holding steady at 53.7 - unchanged from April and well above market expectations of 53 - matching the highest level since May 2022, with production growth accelerating to a three-month high.

European Backdrop & EUR/USD:

The ECB left its deposit facility rate unchanged at 2.00% at its 30 April meeting. The ECB said "upside risks to inflation and the downside risks to growth have intensified," with flash data showing eurozone inflation jumping to 3% in April, driven largely by a rise in energy costs. Investors expect the ECB to raise its key rates by 25 basis points on 11 June, with at least one additional hike priced in by the end of the year. Analysts noted that the April statement "does not pre-commit the ECB to hiking in June, but it does not stop the ECB from hiking in June either."

The critical near-term catalyst for EUR/USD is Tuesday's Eurozone flash May HICP. The Eurozone will unveil the preliminary estimate of the HICP for May, expected to hit 3.3% YoY after posting 3.0% in April; such an outcome or a higher one would result in market participants fully pricing in an interest rate hike by the ECB in June. The April reading of 3.0% was the highest since September 2023 and significantly above the ECB's 2.0% target, with energy prices surging 10.8%, the sharpest increase since February 2023, driven by Middle East conflict-related supply constraints. The Eurozone Manufacturing PMI fell to 51.4 in May from 52.2 in April, missing market expectations of 51.8, with new orders declining as the Middle East war-related demand boost from stock-building faded. This softening in factory activity adds a growth counterweight to the inflation picture, complicating the ECB's calculus.

For EUR/USD specifically, the pair is navigating a narrow corridor. Technical analysis suggests the euro has pierced support at 1.1633-1.1611 and may slide to support at 1.1525-1.1492, with the pair trading near 1.1656 as of 31 May. The 38.2% Fibonacci level near 1.1640 is the key support into this week. EUR/USD's rebound from 1.1585 lows has stalled below the range top at 1.1660, with the extension of the US-Iran truce triggering only moderate risk appetite, while mixed Eurozone data has weighed on the euro. The ECB-Fed rate differential remains the structural driver: the ECB deposit rate at 2.00% sits 150-175bp below the Fed's 3.50-3.75% target range, but markets are pricing ECB tightening and Fed stasis through June, which narrows that gap in forward space and provides EUR/USD with a modest fundamental floor. If Eurozone May CPI on Tuesday prints near or above April's 3.0%, ECB rate hike expectations for 11 June would likely firm further; if US NFP on Friday then surprises to the downside, EUR/USD could push back above the 200-period SMA on the 4-hour chart near 1.1700 and approach the 1.1750-1.1800 area ahead of the 11 June ECB decision.

US Backdrop:

The Federal Reserve's target range sits at 3.50-3.75%, while markets are watching how new Fed Chair Kevin Warsh frames the path ahead, with the next FOMC meeting on 16-17 June representing an important test for rate expectations, especially while Brent crude remains above $90 per barrel and the US-Iran ceasefire continues to hold. The 28-29 April FOMC held rates at 3.50-3.75% on an 8-4 vote, the most dissents since October 1992. Markets are currently pricing roughly no rate cuts for 2026, though that could shift after the 6 June Non-Farm Payrolls report. US markets are closed today for Memorial Day, limiting liquidity across all three pairs in the afternoon session; the ISM Manufacturing PMI for May is the first significant US data point of the week, due Tuesday.

Technical Picture:

GBP/USD: Resistance at 1.3480 (Thursday's three-day high per FXStreet), then 1.3520 and 1.3600. Support at 1.3420 (Friday's session low), then 1.3380 and 1.3300.
GBP/EUR: Resistance at 1.1580 and 1.1600 (repeated failure zone per Pound Sterling Live). Support at 1.1520, then 1.1490 and 1.1450.
EUR/USD: The pair remains well above the 100- and 200-week SMAs at 1.1266 and 1.0966 respectively, with near-term support at 1.1620, ahead of the 1.1560 region; additional declines expose 1.1470, a long-term static support level. Resistance at 1.1660 (range top), then 1.1680 (38.2% Fibonacci retracement) and 1.1700 (200-period SMA on 4-hour).
Outlook: GBP/USD and EUR/USD share a common driver this week in the Iran ceasefire narrative and US payrolls; a confirmed Trump sign-off on the 60-day extension would likely push both pairs toward their respective resistance levels, while a breakdown in talks would trigger a sharp safe-haven dollar bid and test the supports noted above. GBP/EUR remains range-bound near 1.1547, with the relative BoE-ECB policy trajectory the key medium-term determinant.

Today's Calendar:

With US markets closed for Memorial Day, afternoon liquidity will be materially thinner than usual across all three pairs; the UK final Manufacturing PMI at 09.30am is the primary domestic data point, though any Iran-related headline before New York reopens tomorrow will carry outsized weight in a low-volume session.

Outlook:

The week ahead is one of the most data-dense of Q2: Tuesday's Eurozone flash HICP (consensus 3.3% YoY) and Wednesday's US ISM Services PMI will set the tone for ECB and Fed pricing respectively, before Friday's May NFP provides the definitive near-term read on whether the dollar's "higher-for-longer" premium is justified. Treasurers with USD payables should note that GBP/USD above 1.3460 represents the strongest level since late May and that any confirmation of the Iran ceasefire extension could push the pair toward 1.3520; those with EUR payables should monitor Tuesday's HICP closely, as a print at or above 3.3% would likely firm ECB hike pricing for 11 June and provide EUR/USD with a renewed bid toward 1.1700, compressing GBP/EUR back toward 1.1500.

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.