GBP/USD + GBP/EUR Market Update

Sterling Holds Below 1.3450 as Fading Iran Diplomacy Supports the Dollar; US JOLTS and Factory Orders the Day's Key Catalyst, Tuesday, 04 August 2026

GBP/USD: 1.3437 | GBP/EUR: 1.1673 | EUR/USD: 1.1511

GBP/USD drifted lower on Monday, falling to 1.3431 on 3 August, down 0.38% from the prior session, and has opened Tuesday in a narrow range just above 1.3430. The dollar is stabilising after posting moderate recovery gains on Monday as market optimism about a diplomatic resolution to the Middle East conflict fades, with the afternoon session bringing Goods Trade Balance, JOLTS job openings, and factory orders data for June. EUR/USD is similarly contained near 1.1511, with the pair finding little directional conviction ahead of the US data.

Overnight & Market Tone:

GBP/USD is keeping its range below 1.3450 in the European session on Tuesday, with uncertainty surrounding US-Iran talks driving traders toward the dollar as a safe-haven currency and undermining the risk-sensitive pound. Brent crude fell roughly 5% to below $84/bbl on Monday after President Trump called off a planned military strike on Iran and said fresh negotiations would begin, citing pressure from regional allies including Saudi Arabia; Iran denied direct talks but said discussions via Oman were making progress on the Strait of Hormuz. That sharp oil decline has eased near-term UK inflation fears at the margin, but the dollar is stabilising as optimism about a diplomatic resolution fades. The VIX eased to 17.08 last week from 18.57 the prior week, signalling a modest improvement in risk appetite that is limiting further dollar gains but not yet generating a sustained bid for sterling or the euro. European equities opened firmer, consistent with the oil-driven relief in energy costs.

UK Data & Bank of England:

There are no tier-one UK data releases today. The domestic calendar is thin all week until Thursday's construction PMI and Lloyds house price index. With no major UK data and no central-bank meeting this week, sterling takes its lead almost entirely from the US dollar; three central banks have just left rates unchanged, so the near-term direction of the pound now rests on incoming data rather than policy surprises.

The policy backdrop is well established. The Bank of England held Bank Rate at 3.75% on 30 July in a divided 6-3 vote, with three policymakers preferring a rise to 4.00%; the current rate remains 3.75%, and the next decision is on Thursday 17 September. The BoE's central projection published on 30 July showed CPI inflation peaking at around 3.2% in Q4 2026, with the MPC noting that "risks to the inflation outlook are tilted to the upside." On September pricing, the picture is divided: OIS markets were pricing a September hike at a little over 50% immediately after the July decision, but Rabobank argues the MPC's swing voters appear content to hold while waiting for signs of second-round effects, making a September increase look unlikely, with the bank seeing "little in the Committee's communication to suggest much chance of a hike" at that meeting despite markets assigning a probability of around 43%. Governor Bailey's explicit pushback against imminent hike expectations at last week's press conference has reinforced that scepticism. Traders are pricing in persistent weak growth, subdued labour market data, and only temporary upward pressure on energy prices from geopolitical tensions, with consensus reflecting expectations that monetary policy will remain on hold through year-end.

European Backdrop & EUR/USD:

The ECB hiked rates on 11 June for the first time since 2023, taking its deposit rate to 2.25%. The Fed funds target sits at 3.50%-3.75% against that ECB deposit rate of 2.25%, leaving a nominal differential of roughly 137 basis points in the dollar's favour. The interest rate spread is the mechanical driver of every sustained EUR/USD trend, and it is now narrowing from a direction currency markets have not seen in this cycle. Forward pricing reflects that dynamic: markets carry two ECB hikes to 2.75% by early 2027 against a Fed that Chair Warsh has explicitly refused to commit to further action. When the July FOMC hike did not arrive and Warsh declined to promise one, the long-dollar position built over the preceding six weeks unwound; Warsh gave the market nothing, stating there is no soft inflation target and explicitly refusing forward guidance on the grounds that he needs to observe market reaction direct and unfiltered.

For EUR/USD specifically, the pair has recovered from its post-FOMC low near 1.1386 to trade at 1.1511 this morning, broadly in the middle of its recent 1.1400-1.1600 range. EUR/USD has pulled back from its 2026 high of 1.20 to the critical support level near 1.14, with both central banks now leaning hawkish and neither providing the clear rate-divergence signal that typically drives a trend move; the pair is, as one analyst described it, "stuck in the middle." The near-term directional risk is asymmetric: a stronger-than-expected JOLTS print this afternoon would reinforce the case for a Fed hike and push EUR/USD back toward 1.1450-1.1470, while a soft reading would revive the convergence narrative and could test 1.1560. Warsh speaks at Jackson Hole in August, which is the next scheduled opportunity to move September pricing before the meeting itself, making that event a key medium-term anchor for the pair. Eurozone data is light today, leaving EUR/USD almost entirely reactive to the US afternoon releases.

US Backdrop:

Investors have interpreted Warsh's refusal to offer forward guidance as an intention to extend the pause and avoid tightening monetary policy for as long as possible, which led to a weakening of the dollar against major peers despite falling stock indices and rising Treasury yields. The probability of a Fed hike in September has fallen from 75% to 65%, and the likelihood of two hikes in 2026 has dropped from 51% to 44%. Today's JOLTS job openings and factory orders data for June (both 15.00 BST) are the primary near-term repricing catalyst; a second soft payrolls-adjacent print could reopen the debate about the timing of a US rate move, while a strong number would reinforce the hawkish tone struck by Warsh.

Technical Picture:

GBP/USD: Resistance at 1.3450 (intraday cap), then 1.3500 and 1.3530 (recent range highs). Support at 1.3400 (round number), 1.3370, and 1.3330 (post-BoE base).
GBP/EUR: Resistance at 1.1700 (psychological), then 1.1730 and 1.1760. Support at 1.1640, 1.1610, and 1.1580. GBP/EUR is expected to hold near one-year highs in a 1.15-1.18 range, supported by the 150 basis-point gap between Bank of England and ECB policy rates.
EUR/USD: Resistance at 1.1530, then 1.1560 and 1.1600 (upper bound of recent consolidation). Support at 1.1480, 1.1450, and 1.1400 (critical structural level). A break below 1.1400 would extend toward 1.10 or lower as the dollar re-establishes a yield advantage above 150bp, though that scenario requires a material hawkish repricing of the Fed.
Outlook: All three pairs are range-bound ahead of this afternoon's US data; GBP/USD faces the stronger directional risk given sterling's sensitivity to risk sentiment, while EUR/USD is the cleaner expression of the Fed-ECB differential trade and warrants close attention at the 1.1480 support on any upside JOLTS surprise.

Today's Calendar:

JOLTS is the session's pivotal release: a reading materially above consensus would revive September Fed hike pricing and push GBP/USD and EUR/USD lower, while a soft print would extend last week's dollar unwind and could lift GBP/USD back toward 1.3480.

Outlook:

With no UK or eurozone tier-one data this week until Thursday, and the next MPC meeting six weeks away on 17 September, sterling and the euro are both hostage to the US data flow and any shift in Middle East diplomatic signals. Treasurers with USD payables should note that GBP/USD remains capped below 1.3450 in the near term and that a strong JOLTS print this afternoon represents the clearest downside risk to current levels; those with EUR exposures should watch EUR/USD at 1.1480 as the line between continued consolidation and a renewed test of the 1.1400 structural support.

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.