GBP/USD + GBP/EUR Market Update

Bessent's "Operation Economic Outcast" Lands Without Oil Spike; GBP/USD Holds 1.3639, EUR/USD Slips to 1.1654, and All Eyes Turn to Warsh at Jackson Hole on Friday, Tuesday, 25 August 2026

GBP/USD: 1.3639 | GBP/EUR: 1.1698 | EUR/USD: 1.1654

Sterling enters Tuesday's London session in a narrow overnight range, supported by the BoE's 150-basis-point rate advantage over the ECB but capped by pre-Jackson Hole caution. EUR/USD fell to 1.1654 on 25 August, down 0.09% from the previous session, while GBP/EUR edged up to 1.1698, reflecting modest sterling outperformance on the crosses. The key driver today is the Conference Board US consumer confidence release at 15.00 London time, with the more consequential risk sitting 72 hours away in Wyoming.

Overnight & Market Tone:

Brent crude extended losses to trade below $92 a barrel on Monday after Treasury Secretary Bessent announced plans to isolate Iran through broad secondary sanctions, yet the sell-off in oil proved counterintuitively supportive for risk assets: lower energy prices ease the inflation outlook for both the BoE and ECB, reducing the urgency for further tightening. Sterling traded above $1.36 in the final full week of August, near its strongest level since mid-February, as the US dollar faced pressure following the US Treasury's unexpected plan to at least double its purchases of longer-dated government bonds, while investors also awaited details on Iran sanctions and Fed Chair Warsh's remarks at Jackson Hole. GBP/EUR's previous close was 1.1688 (Pound Sterling Live), and the pair has nudged higher overnight to 1.1698 as EUR/USD softened slightly. European equity futures point to a cautious open, consistent with "overall, pretty muted moves ahead of what is likely going to be an eventful week," as one market strategist noted.

UK Data & Bank of England:

The UK data calendar is light today, leaving sterling to trade on positioning and cross-asset flows ahead of Friday's Jackson Hole keynote. The most recent domestic data of note remains July CPI, released on 19 August. July CPI climbed to 2.9%, with services inflation running at 3.4%; the increase came from the Ofgem energy price cap rise rather than underlying demand, as core CPI was unchanged at 2.6% and services inflation actually fell from 3.6%. That composition gives both camps on the MPC something to argue with. At the 30 July meeting, the Bank of England held Bank Rate at 3.75%, although three of the nine committee members voted for an increase. The Bank's central projection showed CPI inflation peaking at around 3.2% in 2026 Q4, with risks to the inflation outlook tilted to the upside. The next scheduled MPC decision will be announced on 17 September. 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 markets currently price approximately +7 basis points of tightening at the September meeting (BlueGamma), implying roughly a 28% probability of a 25bp hike, consistent with a hold as the base case but with the three-way dissent keeping a hike firmly in play. The 17 September decision is a live event for GBP, particularly if August CPI (due before the meeting) surprises to the upside.

European Backdrop & EUR/USD:

The ECB's policy trajectory remains the primary structural driver for EUR/USD this week. The ECB Governing Council raised its three key interest rates by 25 basis points in June, lifting the deposit facility rate to 2.25%, effective 17 June 2026, its first hike since 2023. At the July meeting, rates were left unchanged at 2.25% on the deposit facility. ECB policymakers agreed after June's hike to avoid providing 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. Despite that cautious tone from officials, energy markets have done the hawkish work for them: 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 signals from ECB officials at the early-July Sintra forum. A September hike would lift the deposit rate to 2.50%, with markets seeing a 25% chance of 3.00% by March 2027 and 60% by September 2027. For EUR/USD specifically, the pair sits at 1.1654 this morning, having retreated from Monday's session high near 1.1668 as the dollar found modest support from the Iran sanctions announcement. The pair remains well within its recent range, with the three-month high of 1.1699 (touched on 24 August) acting as near-term resistance. The ECB-Fed rate differential is the key structural anchor: the ECB deposit rate at 2.25% compares with the Fed's target range of 3.50-3.75%, a gap that continues to weigh on EUR/USD on a carry basis, though the prospect of ECB hikes narrowing that gap has been the primary driver of EUR/USD's recovery from its 2026 lows. The ECB's baseline sees eurozone economic growth averaging 0.8% in 2026, a downward revision reflecting the more pronounced impact of the Iran conflict on commodity markets, real incomes, and confidence, with upside risks for inflation and downside risks for growth. Any softening in eurozone PMI or German data this week could cap EUR/USD recovery attempts, while a hawkish Warsh speech on Friday would be the most direct downside risk for the pair.

US Backdrop:

The Jackson Hole Economic Policy Symposium runs Thursday 27 through Saturday 29 August, with Kevin Warsh delivering his keynote on Friday morning, his first Jackson Hole address as Fed chair. Markets are pricing in roughly one-in-three odds of a September rate hike, making Warsh's address potentially the tiebreaker for monetary policy direction in the months ahead. The Fed's July 29 decision to hold rates steady was accompanied by a rare three-way dissent, the first such split since 2016. Today's US calendar is headlined by the Conference Board consumer confidence index at 15.00 London time, with Wall Street expecting the report to show that confidence fell again in August after slipping in July. Tomorrow brings the Q2 GDP second estimate, with the advance print showing 1.5% annualised growth, down from 2.1% in Q1.

Technical Picture:

GBP/USD: Resistance at 1.3660, then 1.3700 (psychological) and the 2026 year-to-date high near 1.3720. Support at 1.3600 (round number, prior breakout level), then 1.3560 and 1.3530.
GBP/EUR: Resistance at 1.1710, then 1.1740. Support at 1.1680 (prior session close), then 1.1650 and 1.1620.
EUR/USD: Resistance at 1.1668 (Monday's session high), then 1.1699 (three-month high, 24 August) and 1.1720. Support at 1.1630, then 1.1590 and 1.1560.
Outlook: All three pairs are consolidating within recent ranges ahead of Jackson Hole; a break of 1.3600 in GBP/USD or 1.1630 in EUR/USD would signal a meaningful shift in USD sentiment, while a sustained EUR/USD push above 1.1700 requires either a dovish Warsh or a further leg lower in oil.

Today's Calendar:

The Conference Board consumer confidence print at 15.00 is the only meaningful intraday catalyst today; a sharper-than-expected decline would add to the soft-landing-versus-slowdown debate and could nudge USD lower into the close, offering a modest window for treasurers managing USD payables.

Outlook:

GBP/USD and EUR/USD are both likely to trade in tight ranges through Wednesday as markets hold their positions ahead of Warsh's Friday keynote; the asymmetry of risk is clear, with a hawkish surprise capable of driving GBP/USD back toward 1.3560 and EUR/USD toward 1.1580, while a neutral or dovish tone would likely extend sterling's run toward 1.3700 and push EUR/USD above 1.1700. Treasurers with USD payables due in the next two to four weeks should consider whether current levels near 1.3639 represent an acceptable rate to cover, given that Friday's speech could reprice the dollar materially in either direction within a single session.

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.