GBP/USD + GBP/EUR Market Update

ONS May CPI Holds at 2.8%, Below Consensus, as FOMC Decision Looms Tonight; GBP/USD Steady at 1.3420 Ahead of Warsh's Debut Press Conference, EUR/USD Firms to 1.1608, Wednesday, 17 June 2026

GBP/USD: 1.3420 | GBP/EUR: 1.1561 | EUR/USD: 1.1608

The ONS confirmed that UK CPI rose by 2.8% in the 12 months to May 2026, unchanged from April, defying economists' predictions of a rise compared to the month prior. Services CPI did rise, from an annual rate of 3.2% to 3.7% between April and May, providing a partial offset that will keep the MPC's hawks engaged ahead of tomorrow's vote. The softer headline, combined with tonight's FOMC, means GBP/USD and EUR/USD are both in a holding pattern until Warsh speaks.

Overnight & Market Tone:

GBP/USD fell to 1.3426 on 17 June, down 0.01% from the previous session, consistent with the cautious pre-FOMC tone that has characterised the week. GBP/EUR resistance sits at 1.1600, with the cross supported by the UK's yield advantage over the eurozone, though political anxieties ahead of next week's Makerfield by-election are a modest headwind. Brent crude has fallen sharply on Iran deal optimism: the current price of Brent futures is around $78.89, with today's range between $78.46 and $83.87, a significant retreat from the triple-digit levels seen in March. Prices are heading toward their longest losing streak of the year as the expected US-Iran agreement to reopen the Strait of Hormuz raised expectations of recovering supply flows, with an interim deal expected to be signed in Switzerland on Friday. The VIX closed at 16.20 on Monday, with the FTSE 100 at 10,430.62. European equities extended gains on Tuesday, with the CAC 40 and FTSE 100 both finishing higher, reflecting the improved risk tone from easing energy prices.

UK Data & Bank of England:

This morning's ONS release is the critical input for tomorrow's MPC. CPI rose 2.8% in the 12 months to May 2026, unchanged from April, with a monthly rise of 0.2%. Transport made the largest upward contribution to the monthly change, while food and non-alcoholic beverages made the largest, partially offsetting, downward contribution. Services CPI rose from 3.2% to 3.7%, which will concern the hawks on the committee given the BoE's focus on domestically generated inflation. The headline undershoot relative to the 3.0% consensus reduces the probability of a widened vote split tomorrow, though it does not eliminate it. The MPC is widely predicted to hold interest rates at 3.75% on Thursday, after Governor Bailey and deputy governor Breeden called for the Bank to tread carefully before acting on rising inflation risks. However, division remains within the MPC: chief economist Huw Pill and external member Megan Greene have signalled they will vote for an immediate rate rise, while Catherine Mann has suggested she is open to a rise if the energy crisis worsens. The Bank publishes its decision and vote split at 12.00 noon GMT on 18 June, with Governor Bailey holding a press conference at 12.30 GMT. OIS pricing implies no change is the modal outcome, with the market focussed on whether the vote split widens beyond the existing 8-1 established at the April meeting. The Bank's own April Monetary Policy Report projects UK CPI peaking at 3.6-3.7% by end-2026, with a tail-risk scenario above 6% if the Strait of Hormuz remains closed. Today's softer print modestly reduces that tail risk but does not alter the central projection materially, given the Iran deal remains unsigned and energy pass-through into the July Ofgem cap is still expected.

European Backdrop & EUR/USD:

The ECB's June hike is now fully digested. The ECB opted for a 25bp hike at its June meeting, bringing the deposit facility rate to 2.25%. The comment from Lagarde at the press conference that the decision was not a "one and done" hike suggests that a second rate increase now appears more likely, though market pricing has moved to reflect a high probability of a pause at the next meeting. For the upcoming ECB meeting on 23 July 2026, markets price an 82.0% probability of no change, implying the deposit rate holds at 2.25%. The June hike came after euro area inflation accelerated to 3.2% in May, remaining well above the ECB's 2% target, with core inflation also rising to 2.5% from 2.2% in April. ECB Governing Council member Gabriel Makhlouf noted on Tuesday that a peace agreement between the US and Iran could alter the inflation outlook materially, a signal that the ECB's path beyond July remains genuinely data-dependent. The ECB's GDP growth forecasts stand at 0.8% for 2026 and 1.2% for 2027, with the risk to the 2026 outlook tilted further to the downside given the recent downward revision to first-quarter growth.

EUR/USD has firmed to 1.1608 from 1.1595 on Tuesday, recovering ground as the Iran deal narrative weighs on the USD and the ECB's hawkish tilt provides a floor for the euro. The base case for EUR/USD remains a 1.15-1.20 range against the dollar, firm but capped by a dollar that has refused to roll over. The pair sits toward the upper end of its recent 1.1522-1.1608 range since the ECB hike. The key driver for EUR/USD today is the FOMC outcome: a hawkish dot plot that removes the last projected 2026 cut would strengthen the USD and push EUR/USD back toward 1.1550-1.1570, while a neutral or communication-focussed Warsh press conference that avoids signalling a hike could allow EUR/USD to test 1.1630-1.1650. The BoE-ECB rate differential currently stands at 150bp (3.75% versus 2.25%), down from 175bp before the June ECB hike, which continues to provide structural support for GBP/EUR above 1.1500. Treasurers with direct EUR/USD exposures should note that the pair is sensitive to both the FOMC dot plot tonight and any Iran deal confirmation on Friday, which would further compress energy-driven inflation premia in EUR.

US Backdrop:

The official FOMC statement after the June 16-17 meeting confirmed that the upper bound of the target federal funds range remained unchanged, cementing the widely anticipated hold at 3.50%-3.75%. The real market event is Warsh's 7.30pm London time press conference. The Summary of Economic Projections for 2026 is likely to show the median participant in the dot plot indicating no cuts this year, after the March SEP continued to anticipate at least one cut. Warsh is unlikely to reveal much about his policy intentions, and will probably emphasise the Fed's data-dependent approach and the need to preserve flexibility amid an uncertain inflation and growth outlook. Any hawkish shift in the statement language, particularly removal of the easing bias, would be the primary USD-positive catalyst tonight. For UK-based treasurers, the announcement comes at 7.00pm GMT.

Technical Picture:

GBP/USD: Resistance at 1.3450, then 1.3500. Support at 1.3390, then 1.3340.
GBP/EUR: Resistance at 1.1600 (noted as a key ceiling by multiple analysts), then 1.1640. Support at 1.1520, then 1.1480.
EUR/USD: Resistance at 1.1630, then 1.1670. Support at 1.1560, then 1.1520.
Outlook: GBP/EUR resistance at 1.1600 is unlikely to be broken without a fresh catalyst, though another test of that ceiling is possible given GBP's yield support. GBP/USD and EUR/USD are both range-bound into the FOMC; a hawkish dot plot would favour USD strength across both pairs, while a neutral Warsh tone would leave the pre-existing upward bias in GBP/USD and EUR/USD intact.

Today's Calendar:

The FOMC at 7.00pm is the dominant event: the rate hold is a near-certainty, but the dot plot and Warsh's tone on the easing bias will set the USD direction for the remainder of the week and frame the context in which tomorrow's BoE vote split is interpreted.

Outlook:

GBP/USD is likely to remain contained in a 1.3380-1.3470 range through the London session before the FOMC outcome drives a directional break tonight; a hawkish dot plot removing the last projected 2026 cut would push GBP/USD toward 1.3350-1.3380, while a neutral Warsh tone could allow a test of 1.3450-1.3470 ahead of tomorrow's BoE. EUR/USD faces the same binary: the Iran deal progress and the ECB's residual hawkish bias provide a floor near 1.1550, but a USD-positive FOMC outcome could test that support, making tonight's press conference the single most important event for all three pairs this week.

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.