GBP/USD + GBP/EUR Market Update

CPI Lands In-Line at 2.9% but Sticky Core Keeps September Hike Live; GBP/USD Holds 1.3556 as FOMC Minutes and Lagarde Speech Loom, Wednesday, 19 August 2026

GBP/USD: 1.3556 | GBP/EUR: 1.1690 | EUR/USD: 1.1596

The ONS confirmed UK headline CPI climbed to 2.9% year-on-year in July, up from 2.6% in June. GBP/USD has returned to the mid-range of the 1.3500s, trading a few pips above 1.3550 at the time of writing, though it remains capped below the 1.3570 resistance area. EUR/USD is stretching higher toward 1.1600 in the European session, with the US dollar resuming its downside as softer US economic data weigh on expectations of tighter Federal Reserve policy.

Overnight & Market Tone:

Sterling entered the London session near 1.3520 after Tuesday's employment data showed UK unemployment holding at 4.9% in the three months to June, defying forecasts for a fall to 4.8%; the pair had reached roughly 1.3555 on Monday, its highest since mid-May, before easing back. The CPI release at 7.00am has since nudged GBP/USD back toward those Monday highs, with the pair quoted at 1.3556 in our database. Brent crude edged up to $91.52 per barrel on Wednesday, extending gains for a fourth consecutive session as the US and Iran showed little indication of reaching an agreement to end the conflict and reopen the Strait of Hormuz. The climb is rippling through bond markets, with the 10-year US Treasury yield rising to 4.72%, up sharply from levels seen before the conflict began. The VIX is quoted near 15.8 (Yahoo Finance), consistent with contained but watchful risk sentiment ahead of today's two event risks.

UK Data & Bank of England:

UK headline CPI climbed to 2.9% year-on-year in July, matching market expectations of 2.9%. The ONS said the rise was driven by a sharp increase in gas prices following a rise in the household energy price cap. On a monthly basis, CPI rose 0.3%, in line with consensus; core CPI held at 2.6% year-on-year, unchanged from June and a tenth above the 2.5% forecast. The in-line headline has limited the immediate sterling reaction, but the stickier-than-expected core reading is the more consequential number for MPC deliberations. The Bank's 30 July central projection showed CPI inflation peaking at around 3.2% in 2026 Q4, with the MPC noting that risks to the inflation outlook are tilted to the upside. The MPC 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 three dissenters were Megan Greene, Catherine Mann, and Huw Pill, representing one more hawkish dissent than June's 7-2 split and two more than April's 8-1; the minority pushing for higher rates has grown at three consecutive meetings. The next scheduled MPC decision is 17 September 2026, with OIS markets currently pricing approximately 7 basis points of tightening at that meeting, implying roughly a 28% probability of a full 25bp hike. Today's sticky core print is unlikely to shift that materially in isolation, but it reinforces the hawkish minority's case and keeps a September move on the table. The Bank had previously projected CPI to be "a little under 3%" in Q3 2026, so today's 2.9% print sits precisely at the upper bound of that guidance.

European Backdrop & EUR/USD:

The ECB raised its deposit facility rate to 2.25% with effect from 17 June 2026, the first hike since 2023, citing war-related inflation pressures. According to a Reuters poll, 57 of 69 economists expect the ECB to hike its deposit rate by a further 25 basis points to 2.50% in September, with 55 of 69 seeing 2.50% as the year-end level. The renewed surge in oil prices has again strengthened expectations of further tightening, and a September move is now almost fully priced in by markets unless energy prices ease materially. Analysts at UOB expect one final 25bp hike in September taking the deposit rate to 2.50%, followed by an extended pause, though additional tightening cannot be ruled out if elevated energy prices persist. ECB policymakers agreed after June's meeting to avoid providing forward guidance on the future rate path, citing elevated economic uncertainty, stressing that communication should remain neutral and reaffirming a data-dependent, meeting-by-meeting approach. ECB Chief Economist Philip Lane noted this morning that 3% eurozone inflation remains too high, a comment that has added a modest hawkish tilt to EUR sentiment ahead of Lagarde's scheduled speech later today. Analysts at HSBC highlight a growing divergence in the global policy outlook, noting that although the ECB is expected to deliver another rate rise in September, for other major central banks it is a much tougher balancing act. For EUR/USD specifically, the pair is trading near 1.1596 in our database, having recovered from Tuesday's 1.1573 close. EUR/USD is stretching higher toward 1.1600 in the European session, supported by the narrowing Fed-ECB rate differential: the Fed holds at 3.50-3.75% while the ECB is expected to hike to 2.50% next month, compressing the gap to as little as 100-125bp. The pair's ability to sustain a break above 1.1600 will depend heavily on the tone of Lagarde's remarks and the FOMC minutes this evening; a hawkish Lagarde combined with dovish Fed minutes would be the clearest catalyst for a move toward 1.1650.

US Backdrop:

The Fed held at 3.50-3.75% on 29 July, its fifth straight hold under Chair Kevin Warsh, with the hawkish June projections still standing and the median 2026 dot at 3.8%. Financial markets will closely scrutinise the July FOMC meeting minutes, due at 7.00pm London time, for deeper insight into the internal policy debate following the 29 July decision, which kept the benchmark range steady via an unusually fractured 9-3 vote; traders will read the account line by line to gauge whether officials see a September adjustment as a live possibility or whether lingering inflation concerns favour holding for longer. The US dollar is resuming its downside today as softer US economic data weigh on expectations of tighter Federal Reserve policy.

Technical Picture:

GBP/USD: Resistance at 1.3570 (intraday cap, per FXStreet), then 1.3619 (monthly R1, per OANDA). Support at 1.3500 (psychological/moving average cluster), then 1.3419 (monthly pivot). The pair remains trapped within the previous days' range, below the 1.3570 resistance area.
GBP/EUR: Resistance at 1.1720 (mid-August high), then 1.1750 (July peak area). Support at 1.1670, then 1.1640. The pound retains a yield advantage of 3.75% against the ECB's 2.25%, which has underpinned the pair through 2026.
EUR/USD: Resistance at 1.1600 (round number/recent range top), then 1.1650. Support at 1.1560 (Tuesday's low), then 1.1520. EUR/USD is stretching toward 1.1600 in the European session, with the pair needing a clean close above that level to signal a fresh leg higher.
Outlook: All three pairs retain a constructive non-dollar bias, but GBP/USD and EUR/USD face meaningful event risk from the FOMC minutes this evening; a hawkish read could reverse today's USD softness and push both pairs back toward their respective intraday supports.

Today's Calendar:

The FOMC minutes are the session's pivotal risk: a hawkish tone revealing broad support for a September hike would likely reverse today's USD softness and cap GBP/USD below 1.3570 and EUR/USD below 1.1600, while a more divided or cautious read would validate the current non-dollar bid.

Outlook:

The bias across all three pairs remains modestly constructive for non-dollar currencies: sticky UK core CPI at 2.6% sustains the hawkish MPC minority narrative, and near-consensus ECB hike pricing for September continues to compress the Fed-ECB differential in the euro's favour. The key downside risk for both GBP/USD and EUR/USD is a hawkish FOMC minutes read this evening that revives Fed tightening expectations, which combined with Brent crude above $91 per barrel would reintroduce the stagflation-adjacent headwind that capped sterling at 1.3530 on Tuesday; treasurers with near-term USD payables may wish to consider layering protection ahead of 7.00pm.

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.