GBP/USD + GBP/EUR Market Update

GBP/USD Slips as Weak UK Services PMI Weighs, EUR/USD Holds Above 1.1600 Ahead of Final Eurozone PMI, and Brent Climbs Toward $97 on Stalled Iran Talks, Wednesday, 03 June 2026

GBP/USD: 1.3455 | GBP/EUR: 1.1581 | EUR/USD: 1.1618

Sterling entered Wednesday on the back foot after Tuesday's confirmation that the S&P Global UK Services PMI fell to 47.9 in May from 52.7 in April, missing market forecasts of 51.7 and signalling the first contraction since April 2025 and the sharpest downturn since early 2021. EUR/USD is holding above 1.1600, supported by near-certain ECB hike pricing for 11 June, while the USD retains a modest bid as oil-driven inflation concerns keep the Fed on hold. Today's key release is the final Eurozone Composite PMI for May, which will either confirm or revise the preliminary 47.5 print (a 29-month low).

Overnight & Market Tone:

GBP/USD traded in a narrow 1.3440-1.3470 range in Asian hours, unable to recover Tuesday's late-session losses after the services PMI miss. GBP/EUR drifted to around 1.1575 before stabilising near 1.1581 as EUR softness from the Eurozone's own PMI deterioration provided a partial offset. The FTSE 100 commenced June 2026 trading in modestly negative territory, quoted around 10,409, representing a fractional retreat of 0.16% from the prior session's close, with the market digesting a combination of domestic economic data, global energy price movements, and evolving US monetary policy expectations. UK 10-year gilt yields rose to 4.85% at the start of June, rebounding from over one-month lows at the end of May, as oil prices surged amid escalating US-Iran tensions. Risk sentiment is cautious: Brent climbed toward $97 per barrel on Wednesday as Iran launched ballistic missiles toward neighbouring countries, while US forces carried out strikes on Qeshm Island in retaliation for attempted attacks attributed to Tehran.

UK Data & Bank of England:

The dominant domestic data point this week has been the May PMI suite. The UK Manufacturing PMI rose to 53.9 in May, marking the strongest expansion since May 2022, with output growing at a three-month high led by intermediate and investment goods, and new orders rising for a sixth straight month. However, that beat has been entirely overshadowed by the services sector: firms cited greater economic hesitancy and weaker investment sentiment among clients, along with delayed consumer spending decisions in response to the Middle East war, particularly affecting international travel, with several also pointing to domestic political uncertainty weighing on client confidence. On the price front, average cost burdens increased, driven by rising oil prices and transport costs, as well as strong wage pressures. The stagflationary character of the data (activity contracting, costs rising) complicates the MPC's task considerably. At its meeting ending on 29 April 2026, 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 vote split shifted hawkishly from the unanimous 9-0 hold in March, reflecting concerns that the Middle East conflict and energy supply shock could push CPI inflation higher in the second half of 2026. CPI inflation was 2.8% in April 2026, down from 3.3% in March, providing the MPC with some breathing room, though the central projection had CPI inflation at 3.1% in Q2, 3.3% in Q3, and rising somewhat further in Q4 before easing back towards the 2% target. At the start of 2026, markets had expected the Bank to cut interest rates twice this year to 3.25%; since the Iran war began, the situation has taken an about-turn, and now a rise of 0.25 percentage points to 4% before December is forecast. OIS pricing implies roughly a 50% probability of a 25bp hike at the 18 June meeting, though the services PMI collapse may trim that probability modestly through the session. The May CPI print (due 17 June, the day before the MPC decision) will be the decisive data point.

European Backdrop & EUR/USD:

The ECB is the more hawkish of the two central banks heading into June. For the upcoming meeting on 11 June 2026, markets price a 92.0% probability of a 25bp hike to 2.25%. That conviction rests on the inflation trajectory: EUR/USD traded marginally higher on Tuesday after data from the Eurozone showed that annual HICP inflation rose to 3.2% in May from 3.0% in April. The May flash HICP print, released Tuesday, thus came in above the April level and above the consensus of 3.3% YoY, cementing the case for action on 11 June. A number of ECB members viewed the April decision to keep rates unchanged as a close call and indicated they would have supported a rate hike had it been proposed; policymakers warned that the energy-driven supply shock was proving more persistent than previously expected, increasing the risk of broader and more entrenched inflationary pressures. 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. On the growth side, the picture is deteriorating: the S&P Global Eurozone Services PMI fell to 46.4 in May from 47.6 in April, below forecasts of 47.7, pointing to the largest contraction in services sector activity since early 2021. The Eurozone Composite Output PMI for May came in at 47.5, a 29-month low. The final reading is due this morning and any upward revision could provide a brief EUR lift. For EUR/USD specifically, the pair has pulled back from Tuesday's 1.1650 area to 1.1618 as the USD retains a modest energy-driven bid. The ECB-Fed rate differential is the key structural driver: the ECB is on the cusp of hiking to 2.25% while the Fed has maintained the target range for the federal funds rate at 3.50-3.75%, leaving a 125-150bp differential that continues to weigh on EUR/USD relative to its pre-conflict levels. However, the near-certain ECB hike on 11 June is largely priced, meaning EUR/USD upside from that event alone is limited unless Lagarde signals further tightening beyond July. Deutsche Bank's chief European economist noted the ECB is "exuding a sense of calm confidence for now" but with "a sense of rising concern the longer the conflict in the Middle East continues," adding 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." Treasurers with direct EUR/USD exposures should note that the pair is trading below its 5-day moving average of approximately 1.1646, and a sustained break below 1.1580 would open a test of 1.1540.

US Backdrop:

The Federal Reserve's target range sits at 3.50% to 3.75%, while markets are watching how new Fed Chair Kevin Warsh frames the path ahead; the next FOMC meeting on 16-17 June could be an important test for rate expectations, especially while Brent crude remains above $100 per barrel and the US-Iran ceasefire continues to hold. April CPI rose 3.8% year-on-year, with firm services prices limiting the Fed's room to sound dovish. Real GDP rose at a 2.0% annualised rate in Q1 2026, while Q1 PCE inflation rose 4.5% annualised, supporting a longer pause. Today's US calendar includes the ISM Services PMI for May (consensus 51.0), which will be closely watched for any sign that the services sector is following the global trend into contraction. A weak print could soften the USD modestly and provide some relief to GBP/USD and EUR/USD.

Technical Picture:

GBP/USD: Resistance at 1.3480 (Tuesday's high), then 1.3510 and 1.3540. Support at 1.3430, then 1.3400 (round number) and 1.3370.
GBP/EUR: Resistance at 1.1600 (psychological), then 1.1625 and 1.1650 (last week's high). Support at 1.1560, then 1.1530 and 1.1500.
EUR/USD: Resistance at 1.1650 (Tuesday's high and 5-day moving average near 1.1646), then 1.1686 (Fibonacci zone). Support at 1.1580, then 1.1540 and 1.1500.
Outlook: GBP/USD and EUR/USD are both consolidating within recent ranges, with the dominant directional risk to the downside for GBP (services PMI drag) and broadly neutral for EUR/USD ahead of the 11 June ECB; a sustained Brent move above $100 would reinforce the inflation-premium bid for USD across both pairs.

Today's Calendar:

The 3.00pm US ISM Services PMI is the session's pivotal release: a reading below 50.0 would represent the first US services contraction since early 2023 and could trigger a meaningful USD sell-off, lifting GBP/USD back toward 1.3490 and EUR/USD toward 1.1660.

Outlook:

GBP/USD is likely to remain capped below 1.3490 through the London morning given the services PMI overhang, with the pair's near-term trajectory increasingly dependent on whether the 17 June UK CPI print validates or challenges the hawkish BoE dissent; EUR/USD faces a binary event on 11 June, where a 25bp ECB hike paired with guidance for further tightening could push the pair back toward 1.1700, while any dovish qualification from Lagarde risks a retreat toward 1.1540. The primary tail risk for all three pairs remains a sharp escalation in the Iran conflict that sends Brent above $100 per barrel, which would simultaneously lift UK and Eurozone inflation expectations, reinforce the USD's energy-exporter safe-haven premium, and compress both GBP/USD and EUR/USD.

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.