GBP/USD + GBP/EUR Market Update

FOMC Minutes Confirm Broad Hawkish Sympathy but September Hold Remains Base Case; GBP/USD Breaks Above 1.3600 as USD Softens, EUR/USD Surges to 1.1693, Thursday, 20 August 2026

GBP/USD: 1.3626 | GBP/EUR: 1.1653 | EUR/USD: 1.1693

Sterling has extended Wednesday's CPI-driven advance, breaking cleanly above 1.3600 for the first time since mid-July after the FOMC minutes triggered a broad dollar sell-off overnight. The minutes of the July FOMC meeting showed that, despite most participants supporting keeping rates unchanged, several favoured a hike, and many judged higher rates would likely be necessary if inflation fails to decline, while a few opted for an immediate move, arguing it could avoid the need for further increases later. Markets, however, focussed on the softer post-meeting data and the absence of explicit forward guidance, keeping the September hold as the working assumption. The session's key domestic risk is the ONS July retail sales print at 7.00am, which will test whether the consumer is absorbing the Brent-driven inflation squeeze.

Overnight & Market Tone:

GBP/USD traded an overnight range of approximately 1.3590-1.3635, with the pair finding fresh impetus after the FOMC minutes landed at 7.00pm London time on Wednesday. Markets currently see a 34% chance of a September Fed rate hike, down from around 60% three weeks ago. That repricing has been the primary driver of the dollar's broad retreat, with EUR/USD the principal beneficiary, surging to 1.1693 from Wednesday's 1.1596 close. GBP/EUR has eased fractionally to 1.1653 as the euro's own momentum outpaces sterling's. The FTSE 100 was last quoted around 10,728, broadly flat, while European equities are under modest pressure, with the DAX and CAC both off around 0.8%. Brent crude settled at $91.86 per barrel on Wednesday, up 0.92% on the day, continuing to act as a dual-edged force: supportive for UK inflation and MPC pricing, but a headwind for risk appetite and consumer spending power.

UK Data & Bank of England:

The pound had already firmed to around $1.356 heading into Wednesday, supported by the July CPI data: headline inflation accelerated to 2.9% from 2.6% in June, matching expectations, while core CPI held at 2.6%. The figures prompted traders to modestly reduce expectations for a Bank of England rate hike later this year, though the stickiness of core inflation means the September MPC meeting on 17 September remains genuinely live. The next scheduled Bank of England rate decision is on 17 September 2026, with the market currently pricing a move of approximately +7 basis points at that meeting. That implies roughly a 28% probability of a 25bp hike to 4.00%, consistent with a Committee that has held at 3.75% since its July meeting but retains a vocal hawkish minority. The BoE's July central projection 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, a framing that keeps the door open to tightening if energy prices remain elevated. Today's ONS July retail sales (7.00am, consensus: +0.3% month-on-month) will be scrutinised for evidence of whether the consumer is beginning to retrench under the weight of higher fuel and utility costs, which would complicate the case for a hike.

European Backdrop & EUR/USD:

EUR/USD has surged to 1.1693, its highest level since early June, making this the most significant single-session move in the pair this week. The driver is a combination of dollar softness following the FOMC minutes and the euro's own structural support from near-consensus ECB tightening expectations. According to a Reuters poll, 57 of 69 economists expect the ECB to hike its deposit rate by 25 basis points to 2.50% in September, with 55 of 69 seeing the deposit rate ending 2026 at that level. 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, a framing that continues to compress the Fed-ECB rate differential in the euro's favour. Traders are anticipating a September ECB hike, as President Lagarde has warned that renewed Middle East hostilities and the resultant rebound in oil prices pose upside risk to the eurozone inflation outlook. Market-based measures of euro-area inflation expectations, reflected in swaps for the next year, are around 2.4%, above the ECB's 2% target, and eurozone inflation edged up to 2.9% in July. For EUR/USD specifically, the pair has now broken above the 1.1650 area that capped it through most of August, and the move has been accompanied by a meaningful shift in the Fed-ECB rate differential narrative: traders are pricing out the possibility of a Fed hike in September, which is dragging the US dollar lower. The ECB's current deposit rate of 2.25% against the Fed funds target of 3.50-3.75% still leaves a nominal differential in the dollar's favour, but the direction of travel now favours the euro. ECB policymakers agreed after June's first rate hike since 2023 to avoid providing guidance on the future path of rates, citing elevated economic uncertainty, stressing that communication should remain neutral, and reaffirming a data-dependent, meeting-by-meeting approach. That posture, combined with the oil-driven inflation backdrop, keeps the September hike well-supported in market pricing. Treasurers with direct EUR/USD exposures should note that a sustained break above 1.1700 would open the path towards the 1.1750-1.1800 zone last visited in June.

US Backdrop:

The FOMC left rates unchanged at 3.50-3.75% in July, drawing three dissents from regional Fed presidents Logan, Hammack, and Kashkari, all voting for a 25bp hike; the statement offered no explicit forward guidance, consistent with Chair Warsh's aversion to signalling the future policy path. With Warsh having moved away from forward guidance, analysts increasingly view each meeting as effectively live; markets initially interpreted the July decision as dovish, and expectations for a September hold have since risen to around 65%. The Jackson Hole Economic Policy Symposium runs 27-29 August, with Warsh delivering the keynote on Friday 28 August, his first Jackson Hole address as Fed chair, landing just 19 days before the September 16 FOMC decision. That speech is now the dominant near-term risk event for USD direction. Today's US calendar is light, with weekly jobless claims (1.30pm) the only scheduled release of note.

Technical Picture:

GBP/USD: Resistance at 1.3650 (mid-July high), then 1.3700 and 1.3750. Support at 1.3580 (Wednesday's high, now first support), 1.3530 (Tuesday's close), and 1.3475 (20-day EMA, per FXStreet).
GBP/EUR: Resistance at 1.1680 (this week's high), then 1.1720 and 1.1800 (July peak). Support at 1.1620, then 1.1580 and 1.1540.
EUR/USD: Resistance at 1.1700 (round-number barrier), then 1.1750 and 1.1800 (early June highs). Support at 1.1650 (former resistance, now first support), 1.1596 (Wednesday's close), and 1.1550.
Outlook: GBP/USD's clean break above 1.3600 is constructive for further gains, though the pair will need to hold above 1.3580 on any intraday pullback to sustain the bullish structure; EUR/USD's test of 1.1700 is the more technically significant event today, and a daily close above that level would shift the near-term bias firmly higher across both pairs.

Today's Calendar:

The ONS retail sales print at 7.00am is the session's pivotal domestic release; a miss below consensus would weigh on MPC hike pricing and could trim GBP/USD's overnight gains, while a beat would reinforce the case for a September move and extend sterling's advance.

Outlook:

The near-term bias across all three pairs is for further dollar weakness, with GBP/USD targeting 1.3650 and EUR/USD probing 1.1700-1.1750, provided the retail sales data does not disappoint materially and Brent crude remains below $93. The key risk scenario is a hawkish surprise from Chair Warsh at Jackson Hole on 28 August, which could rapidly reverse the dollar's losses and compress both GBP/USD and EUR/USD back towards their August ranges; treasurers with USD receivables due in the next two weeks may wish to consider locking in rates at current levels ahead of that event.

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.