GBP/USD + GBP/EUR Market Update

Sterling Stabilises at 1.3226 as Burnham Transition Narrative Firms; EUR/USD Holds 1.1412 Ahead of Flash PMIs, Tuesday, 23 June 2026

GBP/USD: 1.3226 | GBP/EUR: 1.1590 | EUR/USD: 1.1412

GBP/USD has edged up from Monday's intraday low near 1.3160, with the pound rebounding toward 1.33 after falling to its lowest level since March earlier in the session, as markets reacted to Prime Minister Keir Starmer's resignation. The recovery is tentative: investors are now focused on the implications for the UK's fiscal outlook, seeking greater clarity on Burnham's fiscal policy agenda, with a key concern remaining the possibility of increased gilt issuance to finance higher public spending, which could further strain the UK's already fragile public finances. EUR/USD is marginally firmer at 1.1412 after trading as low as 1.1410 last week, with the pair's direction still largely dictated by the dollar side of the equation.

Overnight & Market Tone:

The pound's overnight recovery reflects improving sentiment around the leadership transition: Starmer's resignation has paved the way for Andy Burnham, whose path to Westminster was enabled by his Makerfield by-election victory, with prospects for a smooth handover improving after Wes Streeting declared his support for Burnham's candidacy. UK 10-year gilt yields had climbed to 4.8% earlier in the week as markets weighed political uncertainty, with Burnham's fiscal-dove positioning keeping the gilt market on edge, though the impact on public finances remains difficult to assess given limited policy detail so far. The FTSE 100 enters Tuesday cautiously: traders are watching for UK flash manufacturing and services PMI at 09.30am BST, with gilt yields in focus and attention on what is coming out of Westminster. Risk sentiment is fragile, with miners and other cyclicals under pressure after US-Iran peace talks were called off, reigniting concerns over the durability of the tentative agreement.

UK Data & Bank of England:

The most recent hard data from the ONS confirms a mixed domestic picture. UK CPI rose by 2.8% in the 12 months to May 2026, unchanged from April, while CPIH held at 3.0%. Beneath the headline, the composition is the key concern for the MPC: 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 Bank of England pays particular attention to services prices as a gauge of domestic, wage-driven pressure. At its meeting ending 17 June, the MPC voted 7-2 to maintain Bank Rate at 3.75%, with two members voting to increase rates 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" - a downward revision from April's projections following the partial easing in oil prices. Markets expect the base rate to stay at 3.75% over the summer, with the main question being how soon the Bank resumes cutting rather than whether it hikes. OIS pricing, per the BoE's own June Market Participants Survey, had median expectations for Bank Rate to remain unchanged at the June meeting and thereafter for the year ahead. The next MPC decision is 30 July, accompanied by a new Monetary Policy Report. UK unemployment fell to 4.9% in the three months to April, defying expectations of 5.0%, while wage growth reached 4.4%, above the 4.0% forecast - a combination that keeps the hawks on the committee alert to second-round effects. Today's flash PMI data will be the first June activity reading the MPC will see before its July deliberations; the May services PMI was revised up to 49.3 from a flash estimate of 47.9, but remained in contraction territory, with new orders falling for a third month amid subdued domestic and overseas demand.

European Backdrop & EUR/USD:

At its 11 June 2026 meeting, the ECB raised its main interest rates by 0.25 percentage points, with the deposit rate raised to 2.25%, citing the conflict in the Middle East generating inflation pressures in the eurozone. This was the ECB's first hike after cutting rates eight times from June 2024 to June 2025. The accompanying staff projections trimmed eurozone growth: the ECB's June projections cut eurozone growth to around 0.8% for 2026, and markets now price roughly a 50% chance of a further hike in September. The ECB's Governing Council has been explicit that it is following a data-dependent and meeting-by-meeting approach and is not pre-committing to a particular rate path. The next ECB decision is 23 July. Eurozone flash PMIs are also due this morning alongside the UK prints, and any further deterioration in activity data could temper expectations for a September hike, weighing on EUR. The ECB's Survey of Professional Forecasters expects HICP inflation at 2.7% in 2026 before decreasing to 2.1% in 2027.

For EUR/USD specifically, the pair is trading at 1.1412, near the lower end of its 2026 range. EUR/USD has eased to around 1.143 after the ECB raised rates to 2.25% on 11 June, while a hawkish US Federal Reserve lifted the dollar. The paradox of the ECB hiking yet the euro falling against the dollar reflects the dominant force: the US Dollar Index broke 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%, pressing EUR/USD lower even though the euro's own story turned more hawkish. The EU's terms of trade have deteriorated following the Iran conflict, while relative equity returns have collapsed; J.P. Morgan sees EUR/USD hovering between 1.13 and 1.15 in the next three quarters. For treasurers managing direct EUR/USD exposures, the near-term bias remains modestly negative for EUR: the euro is capped near term by dollar firmness, having struggled to hold above 1.15. A recovery toward 1.15 and above would require either a softening in US inflation data or a more hawkish ECB signal at the 23 July meeting. Eurozone flash PMI data this morning is therefore a live catalyst: a weak composite reading would reinforce the growth-divergence narrative that has weighed on EUR/USD since the FOMC meeting.

US Backdrop:

The Fed held the federal funds target range at 3.50%-3.75% on 17 June 2026, in Kevin Warsh's first meeting as Chair, with projections turning hawkish and the median policymaker now expecting rates to end 2026 higher than today. The biggest difference between the June 2026 dot plot and those prior is the quarter-point rate increase projected for 2026, compared with quarter-point decreases in the previous two dot plots. The energy shock from the Iran conflict pushed US headline CPI to 4.2% in May 2026, with core CPI at 2.9%; markets now fully price a possible rate hike by October. Warsh has also abolished forward guidance, meaning the dollar's direction will be increasingly data-dependent and volatile around each US release. The next FOMC decision is 29 July; today's US calendar is light, with attention turning to Thursday's US Core PCE print.

Technical Picture:

GBP/USD: Resistance at 1.3250 (intraday tested level per overnight session), then 1.3335. Support at 1.3160 (Monday's intraday low), then 1.3000 (psychological). GBP/USD broke below its symmetrical triangle pattern, falling to a low of 1.3160 before recovering back above 1.3200. Buyers need to reclaim 1.3250 before bringing 1.3335 into focus.
GBP/EUR: Resistance at 1.1620, then 1.1650. Support at 1.1540 (mid-June range floor), then 1.1500. The pair has recovered from Monday's lows and is now at the upper end of its recent 1.1525-1.1590 corridor, with political risk premium still embedded.
EUR/USD: Resistance at 1.1450, then 1.1500. Support at 1.1400 (round number and approximate Fibonacci level), then 1.1200. EUR/USD fell to 1.1410 last week, its lowest level since March, as the US dollar surged following the hawkish FOMC meeting. The 1.1400 level represents a round number and approximate Fibonacci retracement of the 2022-2026 rally, having been tested as support in Q3 2025 and held.
Outlook: GBP/USD remains in a short-term bearish structure below 1.3250, with political risk and the hawkish Fed both capping recoveries; EUR/USD is testing critical support at 1.1400 and a clean break lower would open the 1.1200 area, while a hold here keeps the pair range-bound through the July central bank meetings.

Today's Calendar:

The 09.30am UK flash PMI is the session's pivotal release: a services reading that recovers back above 50.0 would ease fears of a demand-led slowdown and offer GBP modest support, while a further contraction would reinforce the stagflationary narrative and keep the BoE in its difficult hold position.

Outlook:

GBP/USD is likely to remain range-bound between 1.3160 and 1.3250 for the near term, with the pair's recovery capped by the hawkish Fed differential and the gilt market's sensitivity to any Burnham fiscal signal; a clean break above 1.3250 requires either a materially weaker US data print or explicit fiscal conservatism from the incoming Labour leadership. EUR/USD's hold of the 1.1400 support is the key technical and fundamental test of the week: a soft eurozone PMI combined with any further hawkish Fed commentary could see the pair test the 1.1350-1.1380 area, while a resilient reading and a firmer oil price would give the ECB's September hike pricing renewed credibility and allow a recovery toward 1.1480.

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.