GBP/USD + GBP/EUR Market Update

Retail Sales Miss on Core Weighs on Sterling as Flash PMIs and Jackson Hole Countdown Dominate; GBP/USD Holds 1.3640, EUR/USD Consolidates at 1.1690, Friday, 21 August 2026

GBP/USD: 1.3640 | GBP/EUR: 1.1668 | EUR/USD: 1.1690

GBP/USD extended Thursday's break above 1.3600 into the Asian session, touching a high near 1.3655 before the ONS retail sales release pulled the pair back modestly toward 1.3635-1.3640. The ONS confirmed retail sales volumes fell 0.5% month-on-month in July, after a downwardly revised 0.7% gain in June, while core retail sales (excluding auto fuel) dropped 0.9% MoM, well below the -0.5% consensus. EUR/USD is consolidating Thursday's surge near 1.1690, with the pair drawing support from persistent USD softness and market expectations of an ECB hike in September.

Overnight & Market Tone:

GBP/USD rose to 1.3641 on 20 August, up 0.26% from the previous session, and the pair has held those gains into Friday's London open, trading in a narrow 1.3630-1.3655 range overnight. Sterling edged slightly lower in an initial reaction to the downbeat retail sales data, though the move has been contained given the headline print matched expectations. EUR/USD is consolidating its weekly gains at around 1.1700 in the European session, with investors awaiting preliminary August PMI data from Germany, the eurozone, and the US, while persistent USD weakness allows the pair to keep its footing. Risk sentiment is broadly constructive: Brent crude rose to $93.01 per barrel on 20 August, up 1.52% from the prior day, reflecting continued Middle East supply anxiety, though the move has not materially disrupted equity futures. FTSE 100 pre-market indications point to a flat-to-modestly-positive open, consistent with the cautious but stable tone across European equity futures.

UK Data & Bank of England:

UK retail sales declined 0.5% MoM in July, in line with the market forecast, after a downwardly revised 0.7% rise in June. Core retail sales (excluding auto fuel) fell 0.9% MoM, against a consensus of -0.5%, while the annual headline rate came in at 1.6%, well below the 2.2% expectation and a sharp deceleration from June's 3.8%. Annual core retail sales rose 2.3%, below the 3.3% consensus. The data paint a picture of a consumer under pressure from elevated energy costs and fading summer promotions, which modestly reduces the urgency for the MPC to tighten further in September. That said, the July CPI print (2.9% headline, 2.6% core, both confirmed earlier this week) keeps the inflation argument alive. At its meeting ending 29 July, the MPC voted 6-3 to maintain Bank Rate at 3.75%, with three members voting to increase to 4%. Megan Greene, Catherine Mann, and Huw Pill voted for an immediate rise to 4.00%. Governor Bailey used the subsequent press conference to caution against reading the split as a signal of imminent tightening, framing the hold as the appropriate response to global conditions that look more uncertain and inflationary, set against domestic conditions he described as, on balance, more benign. The next scheduled MPC decision is 17 September 2026, with OIS markets currently pricing approximately +7 basis points at that meeting, implying roughly a 28% probability of a 25bp hike. A Reuters poll of economists conducted 13-18 August found that nearly 90% (56 of 64) expect the MPC to leave rates unchanged at 3.75% for the rest of the year. Today's core retail sales miss will reinforce the majority's patience, though the three-member hawkish bloc means the September meeting remains genuinely live.

European Backdrop & EUR/USD:

As of mid-July, the ECB's deposit facility rate stood at 2.25%, following a rate increase in June that was the first in three years. According to a Reuters poll, 57 of 69 economists expected the ECB to hike its deposit rate by a further 25 basis points to 2.50% in September, with market participants also appearing confident about further tightening to address elevated inflationary pressures. Markets were pricing a 70% probability of a September ECB hike, as the latest oil price surge following renewed US-Iran tensions outweighed the relatively dovish tone struck by ECB officials at the early-July Sintra forum. The contrast with the Fed's current posture is the primary driver of EUR/USD's recent strength. In the eurozone, August flash PMIs are released today, with services expected at 51.6 and manufacturing at 51.9; the economy has shown resilience to the energy shock and, with German fiscal easing increasingly supporting growth, analysts expect this to carry into Q3. Eurozone Q2 negotiated wage data are also due today, with growth expected to ease slightly to 2.4% year-on-year after 2.5% in Q1. Any upside surprise on either wages or PMIs would reinforce the ECB hike case and provide fresh impetus for EUR/USD above 1.1700. On the EUR/USD pair itself: the ECB's official reference rate for EUR/USD on 19 August was 1.1605, and the pair has since pushed materially higher, with spot now at 1.1690 reflecting the post-FOMC-minutes dollar softening. Analyst forecasts place EUR/USD in a 1.12-1.18 range through Q3 2026, suggesting the pair is approaching the upper end of the consensus corridor. The Bank of England's 3.75% Bank Rate remains 150 basis points above the ECB's 2.25%, which continues to cap EUR/GBP and support GBP/EUR near current levels. For treasurers with direct EUR/USD exposures, the key near-term question is whether the ECB's September hike expectation can sustain EUR/USD above 1.1700 against a backdrop of a Fed that remains on hold but has not signalled cuts.

US Backdrop:

Traders scaled back bets on an immediate Fed rate hike after the latest US inflation data released last week signalled signs of cooling price pressures. Wednesday's FOMC minutes confirmed broad hawkish sympathy within the committee but were read by markets as consistent with a September hold, driving the dollar lower across G10. The 2026 Jackson Hole Economic Policy Symposium runs 27-29 August, with this year's topic being "Financial Innovation: Implications for Payments and Policy." Jackson Hole 2026 will feature Fed Chair Kevin Warsh's first keynote address, on Friday morning 28 August, with the September 16 FOMC decision 19 days out. US August flash PMIs are also released today, and any deterioration in activity would further cement the September hold view and keep the dollar on the back foot. The 10-year UST yield has eased from recent highs in sympathy with the softer dollar, providing a supportive backdrop for both GBP/USD and EUR/USD.

Technical Picture:

GBP/USD: Resistance at 1.3655 (overnight high), then 1.3700 (round number) and 1.3750 (August 2025 range top). Support at 1.3600 (Thursday's breakout level), 1.3556 (Wednesday's close), and 1.3530 (Tuesday's base).
GBP/EUR: Resistance at 1.1680 (intraday high), then 1.1700 and 1.1738 (recent one-year high per market data). Support at 1.1650, 1.1630, and 1.1600 (key psychological level).
EUR/USD: Resistance at 1.1700 (round number), then 1.1720 and 1.1750 (Q3 range top). Support at 1.1650, 1.1605 (ECB reference rate 19 August), and 1.1596 (Wednesday's close).
Outlook: GBP/USD momentum remains constructive above 1.3600, but the core retail sales miss limits near-term upside; EUR/USD is the more directional pair today, with a break and close above 1.1700 on strong PMI data likely to attract further buying interest ahead of Jackson Hole.

Today's Calendar:

The eurozone flash PMIs and ECB wage data at 09.00am are the session's pivotal releases: a wage print above 2.5% combined with composite PMI holding above 50 would materially strengthen the case for a September ECB hike and push EUR/USD toward 1.1720, while a disappointment on either could see the pair retrace toward 1.1650.

Outlook:

GBP/USD bias remains modestly constructive above 1.3600, but the core retail sales miss reduces the probability of a near-term test of 1.3700 without a fresh catalyst; the key risk scenario is a strong US PMI print this afternoon reversing some of the week's dollar softness and pulling GBP/USD back toward 1.3580-1.3600. EUR/USD is the more sensitive pair into next week: the Fed Chair's keynote at Jackson Hole is customarily delivered on the Friday morning, which in 2026 falls on 28 August, and any signal from Chair Warsh on the September rate path will set the tone for all three pairs into month-end; treasurers with unhedged USD payables or EUR/USD exposures should consider whether current levels offer an opportunity to layer in forward cover 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.