GBP/USD + GBP/EUR Market Update

GBP/USD Softens as Brent Retreats from $97 and Bailey Speaks Today, EUR/USD Holds Above 1.1600 Ahead of Near-Certain ECB Hike Next Week, and NFP Positioning Dominates USD Tone, Thursday, 04 June 2026

GBP/USD: 1.3422 | GBP/EUR: 1.1567 | EUR/USD: 1.1604

All three pairs enter Thursday on a softer footing for sterling after Brent crude fell to around $96.97 per barrel, retreating from three consecutive sessions of gains as investors assessed escalating US-Iran tensions that continue to cloud prospects for a peace agreement. The US ISM Services PMI for May came in at 54.5, above the 53.8 consensus and up from 53.6 in April, reinforcing the Fed's case for patience and lending modest USD support overnight. Today's focus falls on Bailey's Investment Association address and Friday's NFP print.

Overnight & Market Tone:

GBP/USD slipped from Wednesday's close near 1.3440 to trade around 1.3422 in early London dealing, with the pair finding limited demand after the stronger-than-expected US services print reinforced a "higher for longer" USD narrative. GBP/EUR has drifted back toward 1.1567, with analysts noting that GBP/EUR is biased higher while holding above trendline support, but repeated failures at 1.1600 suggest further range trading is the most likely near-term outcome. EUR/USD is holding just above 1.1600, supported by the near-certain ECB hike next week. The VIX is quoted around 16.05, up modestly, consistent with a cautious but not alarmed risk backdrop. UK 10-year gilt yields are around 4.85%, retracing part of Monday's nine-basis-point rise as oil prices declined and investors adopted a wait-and-see approach amid uncertainty over Middle East peace efforts.

UK Data & Bank of England:

The UK Services PMI flash estimate for May came in at 47.9, down sharply from 52.7 in April, with business activity decreasing for the first time since April 2025; respondents cited hesitancy and delays in client spending related to the Middle East conflict and UK political uncertainty, while new work, employment, and input price inflation all deteriorated. That reading, confirmed as the final print this week, has materially shifted the near-term MPC narrative. At its April meeting, the MPC voted 8-1 to hold Bank Rate at 3.75%, with one member voting to increase to 4%. The Bank projected CPI at 3.1% in Q2, 3.3% in Q3, and rising further in Q4 due to higher energy and food prices. Markets are anticipating nearly two Bank of England rate increases this year, with the first hike fully priced in for September, meaning the 18 June MPC meeting is widely expected to produce another hold. Governor Bailey speaks at the Investment Association Annual Conference in London this afternoon (4.40pm), and any commentary on the services PMI collapse or the energy shock's second-round effects will be closely parsed for clues on the September trajectory. Key events are this week's appearances by Bailey, who will likely say enough to ensure that the UK's rate advantage over the Eurozone persists.

European Backdrop & EUR/USD:

Analysts expect the ECB to hike policy rates by 25bp, bringing the deposit rate to 2.25% on 11 June, in line with market pricing and consensus, with recent communication from Governing Council members having clearly signalled a rate hike in June from both the hawkish and dovish sides of the spectrum. The size and persistence of the energy shock means, in the words of Executive Board member Schnabel, that "we can no longer look through this shock" and that "the risk of deanchoring inflation expectations is rising," with the main rationale for hiking being to keep inflation expectations anchored. Since the April meeting, headline inflation has evolved broadly as expected while core inflation has surprised on the upside due to a strong services reading in May; growth data has surprised on the downside, leading analysts to expect a downward revision of the 2026 GDP growth forecast to 0.6% year-on-year. ECB policymakers face a dilemma as efforts to combat inflationary pressures risk tipping a fragile eurozone economy into recession, though market expectations of forthcoming tighter monetary policy are already causing more restrictive financial and lending conditions.

For EUR/USD specifically, the pair is holding above 1.1600 and drawing structural support from the near-certain June hike and the prospect of at least one further move in Q3. With the June hike fully priced in, all focus during next week's press conference will be on signals; analysts expect ECB President Lagarde to keep full optionality on the future rate path, including a potential second summer hike. On the technical side, EUR/USD faces resistance at the 1.1710 confluence (200-period SMA on the 4-hour chart and the 50% retracement), above which the pair could target 1.1740 and 1.1785; immediate support sits at 1.1638, with a deeper floor around 1.1574. The ECB-Fed differential is the key driver: the Fed is on hold at 3.50%-3.75% with no cut priced for June, while the ECB is actively tightening, narrowing the rate gap and providing a structural bid for EUR. Treasurers with direct EUR/USD exposures should note that a hawkish Lagarde press conference on 11 June represents the primary upside risk for the pair in the near term.

US Backdrop:

The FOMC held the federal funds rate at 3.50%-3.75% at its April meeting, and participants generally judged that continued elevated inflation together with Middle East uncertainty could necessitate maintaining the current policy stance for longer, though several noted they would lower rates once disinflation is firmly back on track, while a majority indicated some firming would likely become appropriate if inflation continues to run persistently above 2%. The May ISM Services prices sub-index hit its highest level since August 2022 at 71.3, reinforcing the Fed's patience. The next FOMC meets on 16-17 June, with prediction markets pricing a near-97% probability of a hold. Friday's May NFP is the week's dominant USD catalyst, with consensus expecting the unemployment rate to hold at 4.3% and payroll gains near 100,000, while ADP's May private payrolls came in at 122,000, above expectations.

Technical Picture:

GBP/USD: Resistance at 1.3455 (Wednesday's high), then 1.3480 and 1.3520. Support at 1.3400, then 1.3370 and 1.3340.
GBP/EUR: Resistance at 1.1600 (repeated failure zone), then 1.1630. Support at 1.1545, then 1.1510.
EUR/USD: Resistance at 1.1638 (23.6% retracement), then 1.1710 (200-period SMA / 50% retracement) and 1.1740; support at 1.1574 (Fibonacci structural anchor), below which the broader bearish phase reopens.
Outlook: GBP/USD remains capped by the weak UK services PMI and a USD that is drawing support from resilient US data; EUR/USD is the more constructive pair near-term given the ECB hike premium, and a break above 1.1638 would open a test of 1.1710 ahead of next week's Governing Council meeting.

Today's Calendar:

Governor Bailey's 4.40pm Investment Association address is the key intraday risk for GBP pairs; any signal on the MPC's tolerance for above-target inflation or the pace of potential tightening could move GBP/USD by 30-50 pips and reset GBP/EUR positioning ahead of Friday's NFP.

Outlook:

GBP/USD is likely to remain range-bound between 1.3380 and 1.3460 through Thursday's session, with direction determined by Bailey's tone and the pre-NFP USD drift; a hawkish Bailey surprise could push the pair back toward 1.3450, while any dovish concession on the energy shock would expose 1.3380. EUR/USD holds the more constructive medium-term bias given the ECB's near-certain hike on 11 June and the prospect of a second move in Q3, with the primary downside risk being a materially stronger-than-expected US NFP on Friday that reignites broad USD demand and tests the 1.1574 support level.

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.