GBP/USD + GBP/EUR Market Update

Sterling Slips on Fiscal Uncertainty as ECB Hold Leaves EUR/USD Rangebound; Flash PMIs the Last Catalyst Before the Fed, Friday, 24 July 2026

GBP/USD: 1.3336 | GBP/EUR: 1.1707 | EUR/USD: 1.1391

Sterling has continued to drift lower overnight, with GBP/USD touching 1.3315 in early Asian trade on 24 July, recovering modestly to the 1.3336 area as London opened. The week's dominant theme has been the interplay between Burnham government fiscal signals, a softer UK CPI print, and a cautious ECB, all of which have compressed GBP across the board. Today's flash PMIs are the first hard read on July activity across the US, eurozone, and UK, arriving between the 23 July ECB decision and the 29 July FOMC, making them the pivotal intraday catalyst.

Overnight & Market Tone:

GBP/USD rose slightly in early Asian trade to recover some of its recent losses, though the pair remains under pressure from a bearish corrective wave on the short-term basis and continues to trade below its 50-day moving average. UK CPI held at 2.6% in June and retail sales surprised to the upside, but investors remain attentive to events under the new Burnham government, with higher gilt yields continuing to reflect concerns about the fiscal deficit. Brent crude is approaching the $100-per-barrel mark on Middle East supply concerns, and 10-year US Treasury yields have reached their highest point for the year at 4.71%, stoking fears of tighter monetary conditions globally. The FTSE 100 is expected to open under pressure, with energy-cost inflation and gilt yield elevation weighing on domestic sentiment.

UK Data & Bank of England:

The next MPC decision is scheduled for 30 July 2026, with the current Bank Rate at 3.75% following the June vote of 7-2 to hold, with two members preferring a rise to 4.00%. Chief economist Huw Pill and external member Megan Greene both voted to increase rates to 4%, and Pill stated in early July that he believes rates will need to rise this year to keep inflation down. As of 22 July, financial markets were pricing in two rate hikes by March next year, a hawkish repricing driven in part by the energy shock. The June CPI print of 2.6% (below the 2.7% consensus) has tempered the urgency of an immediate move, but services inflation and the vote split mean the 30 July meeting is live. The tone of the MPC statement and the vote split are likely to matter more than the rate decision itself: a hawkish hold with multiple dissents could push GBP higher, while a dovish signal could see sterling drift lower. On the fiscal side, UK gilt prices fell sharply on Burnham's first day as PM, pushing the benchmark 10-year yield up to 5.04% and the 30-year yield to 5.75% after his "fiscal flexibility" remarks. By Tuesday, 10-year gilt yields had eased back 2 basis points to 5.01% as investors awaited fresh policy details, supported by data showing earnings unexpectedly slowed to 4.3% in May. The 10-year gilt remains above 5%, a level that continues to weigh on sterling's carry appeal relative to the BoE's 3.75% base rate.

European Backdrop & EUR/USD:

The ECB's July hold followed confirmation that eurozone inflation eased to 2.8% in June from May's 3.2%, the first decline this year, with core price growth slowing to 2.4%; the pause came just six weeks after the ECB raised rates for the first time in nearly three years. At the Sintra forum, Lagarde insisted June's move was not an "insurance hike" but a response to a genuine inflation problem, and refused to pre-commit to a path, saying "forward guidance is not currently in the cards." At yesterday's press conference, Lagarde announced a pause to assess how much inflation might rise following the resumption of Middle East conflict and oil at $100 per barrel, noting the full effect of the energy shock has not yet manifested and that its duration could be quite long; the ECB does not want to rush into tightening but is ready for a new hawkish step if inflation accelerates again. Markets therefore price a potential second rate increase in September. For EUR/USD specifically, the pair reversed from 1.1434 to 1.1385 as Lagarde declined to explicitly endorse market pricing for a September increase. The euro lost around 70 pips on the day, though the price remained within the sideways channel of 1.1362-1.1461 that has contained the pair for four consecutive weeks. The pair sits near the lower boundary of that range this morning at 1.1391, with the key tension being that the ECB is currently the only major central bank actively raising rates while the Fed holds and most peers sit on their hands, yet this rate advantage has done little to lift EUR/USD sustainably. Brent crude crossing $100 is a terms-of-trade shock for a net energy importer growing at just 0.8% in 2026, which limits the euro's upside even as the ECB maintains a tightening bias. Today's flash eurozone PMI is the first post-ECB activity read; one analyst noted "a bounce in demand during July which takes the PMI up to a level indicative of GDP growing at a reasonably solid 0.3% quarterly pace", which, if confirmed in the composite print, could provide some support to the euro and nudge EUR/USD back towards the mid-range. Germany's July flash manufacturing PMI came in at 52.2 versus 50.5 expected, a notably strong beat that is the most constructive European data point of the week. Treasurers with direct EUR/USD exposures should note that a sustained break below 1.1362 would open the path to 1.1333, while a recovery above 1.1461 would require a meaningful shift in the growth or rate narrative.

US Backdrop:

FOMC minutes from the June meeting noted that inflation had increased further and remained well above the 2% objective, with both core and total inflation moving higher, attributed to the lingering effects of tariffs. The next FOMC meeting is scheduled for 28-29 July, with no Summary of Economic Projections to be produced. Markets currently assign approximately 25% probability to a 25-basis-point rate hike at that meeting according to the CME FedWatch tool, though policymakers are expected to leave rates unchanged while preserving the option to tighten further if inflation proves persistent. The USD's relative firmness this week reflects the combination of elevated UST yields and residual hike optionality; today's US flash PMI at 2.45pm London time is the last major data input before the blackout period begins.

Technical Picture:

GBP/USD: Resistance at 1.3377 (Thursday's close), then 1.3441 (Tuesday's high and the July range top). Support at 1.3315 (overnight low), then 1.3280 and 1.3240.
GBP/EUR: Resistance at 1.1750 (mid-week level), then 1.1800 (15 July 13-month high). Support at 1.1700 (round number and current area), then 1.1670.
EUR/USD: Resistance at 1.1434 (Thursday's pre-ECB high), then 1.1461 (top of the four-week range). Support at 1.1362 (range floor), then 1.1333 and 1.1300.
Outlook: EUR/USD maintains a downward corrective bias within a broader global uptrend, with the global fundamental outlook for the dollar remaining negative but geopolitics and the Fed's hawkish posture providing near-term USD support. GBP/USD faces a dual headwind from fiscal uncertainty and softer CPI; a clean break below 1.3315 would open the path to 1.3280.

Today's Calendar:

June left a three-way growth split with the US composite at 51.9, the eurozone at 50.0, and the UK at 49.3; whether that gap widens, narrows, or holds is the single question that will move the dollar, euro, and pound today.

Outlook:

GBP/USD bias remains cautiously offered into the weekend: the combination of a 10-year gilt above 5%, a 7-2 MPC hold with hike dissenters, and Burnham fiscal uncertainty caps near-term upside, and a UK PMI print that remains sub-50 would reinforce the drift towards 1.3280. For EUR/USD, the pair is coiled at the lower boundary of its four-week range; if Lagarde's post-ECB tone is read as leaning towards growth risks, the 1.1350 support comes into sharper focus, whereas if the inflation-focused message holds, pressure shifts to the top of the range - with the German manufacturing PMI beat already tilting the balance modestly in the euro's favour heading into the US session.

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.