GBP/USD + GBP/EUR Market Update

ECB Hike Probability Hits 99%, GBP/USD Recovers to 1.3367 on USD Pullback as Brent Eases Below $95, and EUR/USD Firms to 1.1540 Ahead of Wednesday's US CPI, Tuesday, 09 June 2026

GBP/USD: 1.3367 | GBP/EUR: 1.1583 | EUR/USD: 1.1540

All three pairs enter Tuesday in modestly firmer territory for sterling and the euro after the US dollar retreated from a two-month high to around 99.85 in early European trading as Middle East hostilities ebbed. Brent crude futures eased to around $94 per barrel after having crossed $98 earlier on Monday, following Iran's statement that it had ended its military operations against Israel, with President Trump adding that both countries were close to a new ceasefire. The partial geopolitical de-escalation has unwound some of Monday's safe-haven dollar bid, lifting GBP/USD by roughly 23 pips from yesterday's 1.3344 close; the focus now shifts squarely to Wednesday's US CPI and Thursday's ECB decision.

Overnight & Market Tone:

GBP/USD extended its recovery above 1.3350 in the European session on Tuesday, capitalising on a broad US dollar pullback, though the fundamental backdrop warrants some caution before positioning for any meaningful appreciation. EUR/USD gathered strength to near 1.1550 in early European trading, bolstered by the hawkish stance of the ECB, though the upside appears limited amid Middle East uncertainty, which could revive safe-haven demand for the dollar. UK 10-year gilt yields rose back above 4.9% last Friday, following US Treasury yields higher after stronger-than-expected US jobs data reinforced expectations of tighter Federal Reserve monetary policy. Nonfarm payrolls surged by 172,000 in May, easily exceeding the expected 85,000, leading markets to fully price in a Fed rate hike by year-end; investors also processed political developments as Greater Manchester Mayor Andy Burnham confirmed his intention to challenge Keir Starmer for the prime minister role. Starmer responded by stating he would not step down, with Burnham's leadership bid hinging on winning the 18 June Makerfield by-election. The FTSE 100 is trading near the 10,400 area in early dealing, broadly steady as energy sector support from elevated Brent offsets the domestic political risk premium.

UK Data & Bank of England:

UK CPI rose by 2.8% in the 12 months to April 2026, down from 3.3% in March. The April reading came in below market expectations of 3.0%, marking the lowest reading since March last year; the moderation was mainly driven by a sharp slowdown in housing and household services inflation following the introduction of an energy price cap by the UK's energy regulator on 1 April. However, the respite is widely expected to be temporary. On 30 April 2026, the Bank of England said, based on energy market pricing in mid-April, that CPI was projected to be 3.1% in Q2, 3.3% in Q3 and "to rise somewhat further in Q4", due to higher energy and food prices. Most economists forecast that inflation will climb from this recent low back to a level closer to 4% by the end of this year due to the economic consequences of the war in Iran. The next ONS CPI release covering May data is due on 17 June, the day before the MPC meeting. Markets are currently pricing a hold at 3.75% as the most likely outcome on 18 June, with swap rate movements consistent with that view. A cut to 3.50% is possible if the 17 June CPI release shows further disinflation, but the Bank's caution about energy-driven inflation later in the year argues against an immediate move. The MPC held the rate at 3.75% at its 30 April meeting on an 8-1 vote, with one member voting for a 25 basis point increase to 4%. Market expectations have shifted, with traders now fully pricing in two Bank of England rate hikes this year; however, dovish MPC member Alan Taylor, who backed the 8-1 decision to hold in April, stated that current interest rates are "quite restrictive" and saw no need for further increases. The divergence between the hawkish market pricing and the committee's internal divisions is keeping gilt yields elevated and capping any sustained GBP rally.

European Backdrop & EUR/USD:

For the upcoming ECB meeting on 11 June 2026, markets price a 99.0% probability of a 25bp hike to 2.25%. This represents a significant hardening from the roughly 91% probability reported by CNBC two weeks ago and the 90% cited by Cambridge Currencies at end-May. Economists surveyed by Bloomberg see quarter-point hikes in both June and September, aligning more closely with market expectations for at least two moves this year. The ECB's hawkish pivot is rooted in the energy shock: the war in the Middle East has led to a sharp increase in energy prices, pushing up inflation and weighing on economic sentiment, with the implications for medium-term inflation and economic activity depending on the intensity and duration of the energy price shock and the scale of its indirect and second-round effects. Economists diverge on whether the ECB should hike at all given anaemic eurozone growth; the last data pointed to an expansion of just 0.1% in Q1, and Berenberg's chief economist noted that Europe's "big three" economies have been weakened by the recent spike in energy costs, leading to a stagflationary environment.

For EUR/USD specifically, the pair has recovered from Monday's 1.1525 low to trade near 1.1540 this morning, sitting toward the lower end of its 2026 range of 1.1435-1.2019 (Cambridge Currencies). The euro is doing something that surprises many: the ECB is about to raise rates, yet the euro has slipped to a six-week low against the dollar, with EUR/USD trading around 1.154 as of this morning. The dollar firmed in May rather than fading as many forecasters expected, on sticky US inflation and an unsigned Iran ceasefire, pressing EUR/USD lower even as the euro's own story has turned more positive. The near-term dynamic for EUR/USD is therefore a tug-of-war: the ECB hike on Thursday provides structural support, but any renewed safe-haven dollar bid from geopolitical flare-ups or a hot US CPI print on Wednesday could limit the upside. For EUR/USD to climb back toward 1.20, analysts would want to see the ECB deliver its hike with hawkish guidance alongside clear signs that US inflation is cooling enough for the Fed to ease later in the year; if both happen, the path of least resistance is a stronger euro into the back half of 2026. Treasurers with direct EUR/USD exposures should note that Thursday's ECB press conference, where President Lagarde will present fresh staff projections, carries more directional weight than the rate decision itself, which is already fully priced.

On GBP/EUR, the Bank of England's Bank Rate is 3.75% against the ECB's 2.00% deposit rate, a 175 basis-point gap that has kept sterling supported; if the ECB hikes on 11 June while the BoE holds at 3.75% on 18 June, the gap closes by 25bp and the euro should firm modestly against the pound. GBP/EUR is forecast to trade in a 1.13-1.17 range over the rest of 2026, with a modest downward bias as the ECB-BoE rate gap narrows. The pair's current level of 1.1583 sits above the mid-point of that range, leaving room for further euro appreciation if the ECB delivers a hawkish hike on Thursday.

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 at the next FOMC meeting on 16-17 June. Market-implied odds of 99.3% for no change at the June FOMC meeting reflect elevated inflation readings and a resilient labour market; April CPI rose to 3.8% year-on-year amid energy price shocks, with May data due on 10 June expected to show further pressure near 4.2%. The June FOMC meeting is anticipated to remove the easing bias, signalling a hawkish stance and a pivot towards potential rate hikes, marking a key test for Warsh. A CPI print at or above the 4.2% consensus tomorrow would reinforce the higher-for-longer narrative, likely supporting the dollar and capping GBP/USD and EUR/USD gains into the ECB decision.

Technical Picture:

GBP/USD: Resistance at 1.3400, then 1.3476 (50% Fibonacci retracement of the May swing high decline) and 1.3498 (200-period SMA on the 4-hour chart). Additional hurdles sit at the 61.8% retracement level at 1.3517, then 1.3576 and 1.3650. Support at 1.3344 (Monday's low), then 1.3300 and 1.3250.
GBP/EUR: Resistance at 1.1600 (recent swing high area), then 1.1620 and 1.1650. Support at 1.1550, then 1.1500 and 1.1450; GBP/EUR has spent the whole of 2026 inside a tight 1.14-1.16 band, anchored by the wide gap between UK and eurozone interest rates.
EUR/USD: Resistance at 1.1560, then 1.1600 and 1.1650. Support at 1.1500, then 1.1435 (2026 range low). The euro's 2026 range against the dollar has already run from 1.1435 to 1.2019, a 5% spread, with most of the risk this summer sitting around scheduled central-bank dates.
Outlook: GBP/USD holds a capped tone beneath the 200-period SMA on the 4-hour chart and under the 50% Fibonacci retracement of the decline from the May swing high, keeping upside attempts vulnerable. EUR/USD's near-term direction is binary around Wednesday's US CPI and Thursday's ECB decision; a hawkish ECB with upward-revised inflation projections would be the most likely catalyst to push EUR/USD above 1.1600 and compress GBP/EUR toward 1.1520.

Today's Calendar:

Today is a positioning day with no tier-1 UK or EU data; the week's two live catalysts are Wednesday's US CPI (which will set the dollar tone into the ECB) and Thursday's ECB decision and press conference, where Lagarde's guidance on the September path will be the primary driver of EUR/USD and GBP/EUR direction.

Outlook:

The bias for GBP/USD remains modestly constructive on the back of the dollar's partial retreat, but the pair is unlikely to reclaim 1.3400 convincingly ahead of Wednesday's US CPI; a print at or above the 4.2% consensus would likely push GBP/USD back toward 1.3300-1.3344 support and reinforce the dollar's floor. With a live ECB decision on 11 June and fresh staff projections that day, intraday swings of a cent or more are realistic around the decision for both EUR/USD and GBP/EUR; treasurers with EUR payables or receivables due this week should consider that a hawkish ECB outcome, paired with any softening in US CPI, represents the scenario most likely to push EUR/USD above 1.1600 and compress GBP/EUR toward 1.1500 or below.

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.