GBP/USD + GBP/EUR Market Update

Sterling Firms to 1.3206 as Hot PCE Confirms Fed Hold; EUR/USD Steadies Near 1.1387 as Brent Slides Below $75, Friday, 26 June 2026

GBP/USD: 1.3206 | GBP/EUR: 1.1597 | EUR/USD: 1.1387

GBP/USD has recovered from Thursday's intraday low of 1.3161 to open near 1.3206 this morning, as end-of-month rebalancing flows and a modest risk-on tone in Asian equities provided some support overnight. The May US PCE deflator, released Thursday, came in at 4.1% year-on-year, matching consensus and up from 3.8% in April, the highest reading since April 2023. EUR/USD has edged up from 1.1357 to 1.1387, while GBP/EUR holds near 1.1597. The session's focal point is the University of Michigan final June sentiment reading at 3.00pm London time, alongside any Burnham leadership transition headlines that could reprice gilt risk premia.

Overnight & Market Tone:

Risk sentiment is modestly constructive heading into the London open, with the FTSE 100 indicated near 10,530 after Thursday's close, supported by a third consecutive weekly decline in Brent crude. Brent eased back below $75 per barrel on Friday, giving back some of Thursday's gains as investors assessed rising shipping activity through the Strait of Hormuz despite a vessel being struck by an unidentified projectile off the coast of Oman. Brent is on track for a third straight weekly drop. The VIX closed at 18.89 on Thursday, reflecting contained but not complacent risk appetite. The UK 10-year gilt yield extended its decline to around 4.74%, an over two-month low, as weaker UK flash PMI data reinforced expectations of slower economic momentum. The Bund and US 10-year Treasury yields are broadly steady in early trade, with the 10-year UST near 4.26% per overnight data.

UK Data & Bank of England:

At its meeting ending 17 June 2026, 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 hawkish minority widened from the 8-1 split seen in April, reflecting persistent inflation concerns. UK CPI held at 2.8% in May 2026, above the MPC's 2% target. 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 announcement of a Middle East 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. That implies markets price roughly one further 25bp hike by year-end, though the BoE's own models suggest much of this slope reflects risk premia rather than a firm tightening signal. June PMI data showed the UK economy under pressure, with the composite index falling to 49.4, below expectations and signalling contraction for a second consecutive month. Rising input costs and persistent services inflation remain key concerns for the Bank of England. The next MPC decision is 30 July, and markets will scrutinise any Burnham transition signals for fiscal loosening that could force the committee's hand. Investors are focussed on the implications for the UK's fiscal outlook and Burnham's fiscal policy agenda, with a key concern remaining the possibility of increased gilt issuance to finance higher public spending.

European Backdrop & EUR/USD:

The ECB raised its deposit facility rate to 2.25% with effect from 17 June 2026, its first increase since 2023. The ECB stated that the Middle East war is generating inflation pressures, and in its baseline staff projections, headline inflation is expected to average 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. President Lagarde's post-decision press conference was notably non-committal on the path ahead, with the Governing Council explicitly declining to pre-commit to a rate path. PMIs showed inflationary pressures eased in June, underpinning ECB President Lagarde's dovish tilt. For the next ECB meeting on 23 July 2026, market pricing implies an 89% probability of rates remaining unchanged at 2.25%. That is a material shift from the near-50% probability of a second hike that markets were pricing earlier this month, and it is the primary reason EUR/USD has struggled to sustain any rally above 1.1450.

EUR/USD at 1.1387 sits in the lower half of its June range. The pair has recently broken below key horizontal support levels at 1.1496 and 1.1450, trading well underneath its downward-sloping 20-day moving average. The Fed-ECB rate differential remains the dominant driver: the Fed held at 3.50-3.75% on 17 June, but the dot plot flipped hawkish and the Dollar Index broke above 100. J.P. Morgan Global Research notes that two bearish euro forces have intensified: the relative growth divergence between the EU and the US has widened, and the hawkish Fed repricing has moved rate differentials in favour of the dollar in both real and nominal terms. The ECB slightly lowered its eurozone GDP projection to 0.8% for 2026 (from 0.9%), and 1.2% for 2027 (from 1.3%). For treasurers with direct EUR/USD exposures, the pair's near-term range is anchored by the 1.1350-1.1400 support zone; a break below 1.1350 would open the path toward 1.1200 per technical analysis, while any dovish Fed signal or upside eurozone data surprise could push the pair back toward 1.1450-1.1500. J.P. Morgan sees EUR/USD hovering between 1.13 and 1.15 over the next three quarters.

US Backdrop:

FOMC participants raised their 2026 inflation outlook to 3.6% headline and 3.3% core at the June meeting, up sharply from 2.7% for both measures projected in March. Core PCE for May came in at 3.4% year-on-year, slightly above the 3.3% consensus. Ahead of the June decision, the market did not anticipate any cuts in 2026, and a quarter-point hike was expected by year-end according to CME FedWatch. Today's US calendar is light: the University of Michigan final June sentiment reading (preliminary 48.9) is due at 3.00pm London time and is the only tier-one release. Year-ahead inflation expectations in the preliminary reading edged down to 4.6% from 4.8% in May. A final print above the preliminary would add to the dollar's bid.

Technical Picture:

GBP/USD: Resistance 1.3248 (Tuesday's close), then 1.3290 and 1.3340. Support 1.3161 (Thursday's intraday low), then 1.3120 and 1.3070.
GBP/EUR: Resistance 1.1620 (Wednesday's close), then 1.1650 and 1.1700. Support 1.1570, then 1.1535 and 1.1490.
EUR/USD: Resistance 1.1450 (broken support, now capped by the 20-day moving average), then 1.1500. Support 1.1350, then 1.1200 and 1.1150 per Dukascopy analysis.
Outlook: GBP/USD's recovery from 1.3161 looks corrective rather than impulsive; end-of-month flows may temporarily lift the pair toward 1.3248 resistance, but the structural dollar bid and Burnham fiscal uncertainty argue against a sustained break higher. EUR/USD's failure to reclaim 1.1450 keeps the medium-term bias tilted lower toward 1.1350.

Today's Calendar:

The Michigan final reading is the session's only scheduled tier-one catalyst; a revision above the preliminary 48.9 would modestly reinforce the dollar's bid, while a downward revision could provide brief relief for GBP/USD and EUR/USD into the weekend.

Outlook:

GBP/USD enters the weekend with a modest recovery bid from 1.3161, but the pair's ceiling remains firmly set by the hawkish Fed dot plot, a 30bp OIS upward slope in UK rates that is largely risk-premia-driven rather than a firm hike signal, and the unquantified fiscal risk premium embedded in Burnham's pending policy agenda. EUR/USD's inability to reclaim 1.1450 after the ECB's June hike, combined with markets now pricing only an 11% probability of a July follow-up, leaves the pair vulnerable to further dollar strength; treasurers with EUR payables should note that the pair's next meaningful support at 1.1350 is within one adverse data print of being tested.

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.