GBP/USD + GBP/EUR Market Update

Iran Sanctions Countdown Dominates Risk Tone as GBP/USD Holds 1.3636, EUR/USD Retreats from Three-Month High, and Jackson Hole Looms; Monday, 24 August 2026

GBP/USD: 1.3636 | GBP/EUR: 1.1687 | EUR/USD: 1.1668

GBP/USD opened the week marginally softer at 1.3636, consolidating Friday's close after last week's run from 1.3535 to a high of 1.3644 driven by the August flash PMI beat and broad dollar weakness. Reuters reported that Asian share markets slipped on Monday and oil prices eased as investors awaited details of threatened US sanctions on Iran due later in the session. EUR/USD has retreated to 1.1668 from Friday's three-month peak near 1.1699, with the pair's near-term direction now firmly tethered to Warsh's Jackson Hole address on Friday and the ECB's September policy decision.

Overnight & Market Tone:

Share markets were hesitant in Asia on Monday and oil prices eased as investors awaited details of threatened US sanctions on Iran due later in the session. Brent crude futures declined 1.5% to around $92.95 by early morning GMT, while WTI fell 1.7% to $85.60 a barrel. The pullback in oil is a modest tailwind for UK inflation expectations at the margin, though the 10-year gilt yield has been trading around 5.06% as higher oil prices reinforced concerns about inflation and the monetary policy outlook, with the increase in energy costs particularly significant for the UK as a net oil importer. FTSE 100 futures point to a cautious open, consistent with Friday's close at 10,816 (Yahoo Finance). The VIX closed at 15.13 on Friday, down 5.5% on the day, suggesting that last week's risk-on mood has not fully unwound, though the Iran sanctions event risk this evening could shift that picture rapidly. GBP/EUR is steady at 1.1687, marginally firmer than Friday's 1.1685 close, with the cross finding modest support from the UK's stronger-than-expected August services PMI print.

UK Data & Bank of England:

Friday's flash PMI data provided the week's most significant domestic input for sterling. The UK preliminary services PMI leapt to 53.6 in August, well above the 51.8 expected, while manufacturing PMI ticked down to 47.3. The services index came in above the market forecast of 51.8, building on July's 51.8 reading. The composite reading therefore remains comfortably in expansion, reinforcing the view that the UK economy is holding up despite elevated energy costs. This week's domestic calendar is relatively light ahead of next week's more consequential releases; no major ONS data is scheduled for today. The MPC's next scheduled decision is 17 September. At the July meeting, the Bank of England held Bank Rate at 3.75%, though three of the nine committee members voted for an increase. 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. OIS pricing, however, tells a somewhat more hawkish story: the next scheduled Bank of England rate decision is on 17 September 2026, with the market currently pricing a move of approximately +7bp at that meeting, implying roughly a 28% probability of a 25bp hike. The Bank's central projection from its July meeting 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. Recent labour data pointed to a cooling jobs market, with unemployment unexpectedly holding at 4.9% and payroll employment declining by 86,000 year-on-year, while regular earnings growth was slightly stronger than anticipated at 3.5%. The combination of a resilient services sector, sticky wages, and above-target inflation keeps the September hike debate alive, even if the consensus leans firmly towards a hold. Sterling's near-term ceiling is likely to be set by whether Warsh's Friday speech is read as opening the door to Fed easing, which would compress the BoE-Fed rate differential and provide further GBP/USD support.

European Backdrop & EUR/USD:

The ECB's policy trajectory is providing a structural underpinning for the euro that was absent for much of the first half of 2026. The ECB raised its deposit facility rate from 2% to 2.25% at its June meeting, its first hike since 2023, reversing a prolonged easing cycle in response to the energy shock from the Middle East conflict. The ECB voted to leave its main interest rate unchanged at 2.25% at its July meeting, but traders are already anticipating a rate hike in September, as ECB President Lagarde warned that renewed Middle East hostilities and the resultant rebound in oil prices pose upside risk to the eurozone inflation outlook. Markets now see a 70% chance of a September rate hike, as the latest oil price surge following renewed US-Iran strikes has outweighed the relatively dovish tone struck by ECB officials at the early-July Sintra forum. Lagarde repeatedly stressed after the ECB's July meeting that policymakers are less concerned about the initial energy shock itself than about its transmission into wages, services inflation, and inflation expectations. July's increase in core inflation to 2.5% suggests the ECB cannot yet declare victory over inflation, though many economists note weak evidence that higher energy costs have triggered broad-based second-round effects. ECB Executive Board member Isabel Schnabel is confirmed to speak at Jackson Hole this week, and any hawkish framing from her will reinforce September hike pricing and lend the euro additional support. On the data side, the August flash Composite PMI for the eurozone rose slightly to 52.1 from 52.0 in July, beating analyst forecasts, with the improvement driven primarily by the manufacturing sector, which posted its strongest growth in over four years, led by Germany's robust factory activity. This week brings Germany's IFO survey and the eurozone's final Q2 GDP reading on Tuesday, ECB meeting accounts on Thursday, and flash August HICP inflation on Friday, all of which could sharpen or soften September hike expectations. For EUR/USD specifically, the euro reached a three-month peak near 1.17 on 21 August, fuelled by growing unease over the US Treasury's plan to expand long-term debt buybacks, which weighed on the dollar's appeal. EUR/USD ended last week around 1.1680, capped below 1.1700 after another failed run at the figure; the domestic calendar offers little to move it before Friday's flash inflation print, so the pair stays largely a dollar story keyed to Jackson Hole. The structural backdrop for EUR/USD is unusual: an ECB that has resumed hiking against a Fed that has stepped back from forward guidance creates an asymmetric setup, with a further 25bp ECB hike in September close to fully priced. Treasurers with direct EUR/USD exposures should note that a hawkish Warsh speech on Friday could push the pair back below 1.1600, while a neutral-to-dovish tone risks a test of 1.1750 or beyond.

US Backdrop:

Jackson Hole 2026 begins on 27 August, with the day every trading desk is watching being Friday 28 August, when new Fed Chair Kevin Warsh delivers his first keynote; a 9-3 FOMC dissent vote and September rate hike odds stuck at around one-in-three mean a neutral speech is already priced in. Warsh has already removed forward-looking guidance from FOMC meeting statements, preferring a more data-dependent approach, making his Jackson Hole speech particularly significant as one of the few extended opportunities for markets to hear directly from the new Chair. Goldman Sachs noted that, historically, the Jackson Hole keynote speech has tended to significantly amplify foreign exchange market volatility. Today's session is dominated by the Iran sanctions announcement at 18.00 GMT; US Treasury Secretary Bessent will hold a press conference at 18.00 GMT after last week threatening to impose "the toughest sanctions in history" on Iran, with secondary sanctions on Iran's trading partners also threatened. The dollar's near-term direction will be shaped by whether the sanctions package is read as escalatory (USD supportive via safe-haven flows) or as a step toward eventual de-escalation (USD negative).

Technical Picture:

GBP/USD: Resistance at 1.3644 (Friday's high), then 1.3680 and 1.3720. Support at 1.3600 (psychological), then 1.3556 (19 August low) and 1.3530.
GBP/EUR: Resistance at 1.1699 (Friday's high), then 1.1720 and 1.1750. Support at 1.1668 (current), then 1.1640 and 1.1600.
EUR/USD: Resistance at 1.1699 (Friday's three-month high), then 1.1720 and 1.1750. Support at 1.1640, then 1.1600 (key technical level) and 1.1500.
Outlook: All three pairs are in a holding pattern ahead of the Iran sanctions announcement this evening and Warsh's Jackson Hole keynote on Friday; GBP/USD retains a constructive bias above 1.3600 while EUR/USD's ability to sustain above 1.1650 will be the key test of whether last week's dollar weakness has further to run.

Today's Calendar:

The 18.00pm Bessent press conference on Iran sanctions is today's single most consequential event for FX; a package that extends secondary sanctions to Iran's trading partners (notably China) risks a sharp risk-off move that could push Brent back above $95 and weigh on EUR/USD and GBP/USD alike.

Outlook:

GBP/USD is likely to remain range-bound between 1.3600 and 1.3650 for much of this week, with the balance of risk skewed to the upside if Warsh's Friday keynote is read as consistent with a September Fed hold or cut; the key downside risk is a hawkish Warsh surprise combined with an escalatory Iran sanctions package this evening, which could push GBP/USD back below 1.3580 and EUR/USD toward 1.1600. Treasurers with USD payables should consider using any near-term dollar softness to layer in cover, while those managing EUR/USD exposures face a binary event risk from both Warsh on Friday and the ECB's September decision, where a 70% market-implied probability of a hike leaves meaningful room for a dovish surprise to unwind recent euro gains.

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.