GBP/USD + GBP/EUR Market Update

Starmer Exit Plan Weighs on GBP/USD at 1.3193 as Political Risk Compounds Post-FOMC Dollar Strength; EUR/USD Holds Above 1.1450 on Iran Deal Uncertainty, Monday, 22 June 2026

GBP/USD: 1.3193 | GBP/EUR: 1.1525 | EUR/USD: 1.1447

GBP/USD has opened Monday with a small bearish gap, regaining the 1.3200 level in early European trade but failing to fill the gap, as two forces weigh simultaneously: the residual dollar strength from the Fed's hawkish 17 June dot-plot revision and a fresh domestic political shock centred on Downing Street. UK Prime Minister Keir Starmer is expected to spell out an exit plan today, with Andy Burnham, Labour's former Greater Manchester Mayor, favourite to replace him. EUR/USD stays defensive above 1.1450 in early European hours, with concerns about progress on the US-Iran peace deal and expectations of higher US interest rates keeping the dollar supported against the euro.

Overnight & Market Tone:

GBP/USD was last seen 0.23% lower against the dollar, trading near $1.3202, while the yield on 10-year UK gilts was flat in early Monday trade at 4.8452%. UK 10-year gilt yields had climbed to around 4.8% last week, extending their rebound from recent lows as markets weighed political uncertainty, with Burnham's Makerfield by-election victory bolstering his profile as a potential challenger to Starmer and prompting investors to consider possible fiscal implications of a leadership change. GBP/EUR is marginally softer at 1.1525, having drifted from the 1.1535 area seen at Friday's close, reflecting sterling-specific selling rather than any fresh euro strength. FTSE 100 futures point to a softer open near 10,377, down around 0.2%, with European equity markets also cautious. Risk sentiment is broadly defensive: WTI crude is falling hard toward the $70 level, undermined by fresh hopes of the Strait of Hormuz reopening after Qatar and Pakistan said a high-level committee had agreed on a roadmap to a final deal within 60 days. Brent is indicated near $78-79 per barrel, a sharp retreat from the above-$110 levels seen in April at the height of the Iran conflict.

UK Data & Bank of England:

The domestic data backdrop heading into this week is mixed. The ONS confirmed that CPI rose by 2.8% in the 12 months to May 2026, unchanged from April, which was the key input into last week's MPC decision. Core inflation edged up to 2.6% in May from 2.5% in April, while services inflation rose to 3.7% from 3.2%, the latter figure being the component the MPC watches most closely for domestic price persistence. At its meeting ending 17 June, the MPC voted 7-2 to maintain Bank Rate at 3.75%, with two members voting to increase by 25 basis points to 4.00%. The Bank said, based on energy market pricing as of 15 June, that CPI inflation was expected to be "a little under 3% in 2026 Q3" and "a little over 3.25% in Q4," lower than its April forecasts. The widening of the vote split to 7-2 from April's 8-1 is a meaningful hawkish signal, but the BoE's revised-down inflation peak reduces the urgency for an imminent hike. In the lead-up to the June meeting, the announcement of a peace deal contributed to a shift in the OIS curve towards the bottom of its recent range, with an upward slope of around 30 basis points by end-2026. OIS pricing therefore implies markets see the next MPC meeting on 30 July as a live but not certain event for a further move, with roughly 30bp of additional tightening priced over the remainder of 2026. The political dimension is now the dominant near-term GBP driver: a senior political economist at Aberdeen noted that in the short term, Burnham is likely to be focused on gaining the confidence of markets and not moving too radically away from the current fiscal agenda set out under Starmer and Chancellor Reeves. That reassurance may limit gilt yield upside, but sterling will remain sensitive to any confirmation of Starmer's departure timetable through the session.

European Backdrop & EUR/USD:

The ECB delivered its June 2026 monetary policy decision on 11 June, hiking all three key rates by 25 basis points: the deposit facility rate rose from 2.00% to 2.25%, the main refinancing rate to 2.40%, and the marginal lending facility to 2.65%, effective 17 June. The decision marked the ECB's first rate increase since its aggressive tightening cycle ended in September 2023 and a sharp reversal from the eight consecutive cuts delivered between June 2024 and June 2025. At the press conference, President Lagarde stated that the war in the Middle East is generating inflation pressures, and that the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve. In the baseline of the new Eurosystem staff projections, headline inflation is expected to average 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028. Markets price roughly a 50% chance of a further ECB hike at the 23 July meeting. ECB President Lagarde is set to speak later today, and any commentary on the pace of further tightening or the impact of falling oil prices on the inflation outlook will be closely watched.

For EUR/USD specifically, the pair is caught between two competing forces. The ECB's hawkish pivot is euro-supportive in isolation, but the euro fell against the dollar even after the ECB raised rates for the first time in three years, with EUR/USD trading around 1.143 and the dollar remaining in the driving seat. The US dollar has firmed sharply, with the Dollar Index breaking above 100 in June after the Fed held rates at 3.50%-3.75% on 17 June and signalled possible hikes, with US inflation at 4.2%. The BoE-ECB rate differential has narrowed to 150bp from 175bp before the ECB's June hike, anchoring GBP/EUR in a tight corridor all year, with the Bank Rate at 3.75% against the ECB's 2.25% deposit rate. For treasurers with direct EUR/USD exposures, the pair's 2026 range has run from 1.1435 to 1.2019 (Cambridge Currencies data), and at 1.1447 it sits near the lower end of that range. J.P. Morgan Research notes that the EU's terms of trade have deteriorated following the Iran conflict while relative equity returns have collapsed, and sees EUR/USD hovering between 1.13 and 1.15 over the next three quarters. The near-term risk for EUR/USD is asymmetric: a confirmed Iran deal and further oil price declines would ease eurozone inflation expectations and reduce the urgency for ECB hikes, potentially capping the euro's rate-driven support, while any deterioration in peace talks could reignite energy risk and weigh on the growth-sensitive euro more than the dollar.

US Backdrop:

The Fed kept the federal funds rate unchanged at 3.50%-3.75% for a fourth consecutive meeting in June 2026, in line with expectations, in the first meeting under new Chair Kevin Warsh. The median estimate for the fed funds rate at end-2026 is now 3.8%, up from 3.4% in March projections, signalling the committee sees at least one rate hike as necessary this year. In the wake of the decision and Warsh's remarks, traders were anticipating a hike could come as early as October. The US data calendar is light today, with the week's focus falling on flash June PMIs (Tuesday) and PCE inflation data (Friday), both of which carry scope to reprice the October hike probability and move USD broadly. US PCE inflation data is eyed after Warsh's hawkish debut, with June PMIs also in the spotlight as the US-Iran deal eases the energy crunch.

Technical Picture:

GBP/USD: Resistance at 1.3240 (Friday's intraday high), then 1.3297 (18 June pre-BoE level). Support at 1.3193 (current spot/database level), then 1.3160 (post-FOMC low area) and 1.3120 (April consolidation zone).
GBP/EUR: Resistance at 1.1535 (Friday close / mid-June range top), then 1.1561 (17 June high). Support at 1.1525 (current spot), then 1.1490 and 1.1450 (lower end of the 2026 1.14-1.16 band).
EUR/USD: Resistance at 1.1480 (Friday's European session high), then 1.1513 (18 June level) and 1.1608 (17 June pre-FOMC high). Support at 1.1447 (current spot/database level), then 1.1435 (2026 range low) and 1.1400 (psychological).
Outlook: GBP/USD faces the more acute near-term downside risk given the political overlay; EUR/USD is better supported at current levels by the ECB's hawkish pivot but remains capped by the firm dollar, and a break below 1.1435 would open a test of 1.1400 that would also drag GBP/EUR lower through the 1.1490 support.

Today's Calendar:

Lagarde's speech is the primary scheduled market mover today; any signal on the pace of further ECB tightening given the sharp fall in oil prices will directly reprice EUR/USD and, through the rate differential, GBP/EUR.

Outlook:

GBP/USD bias is modestly bearish this week: confirmation of Starmer's exit adds a political risk premium that the pair did not carry last week, and with the BoE's revised-down inflation peak reducing the case for near-term MPC tightening, sterling lacks a domestic rate catalyst to offset the dollar's post-FOMC bid. EUR/USD is likely to remain range-bound between 1.1435 and 1.1513 in the near term, with the key risk scenario being a breakdown in Iran peace talks that would reignite energy prices, push eurozone inflation expectations higher, and paradoxically support the ECB's rate path while simultaneously weighing on euro-area growth sentiment, keeping the pair capped on any rally.

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.