GBP/USD + GBP/EUR Market Update

PCE Day Meets Jackson Hole Eve: GBP/USD Holds 1.3632 as Brent Eases and Markets Await Warsh's Debut Keynote, Wednesday, 26 August 2026

GBP/USD: 1.3632 | GBP/EUR: 1.1680 | EUR/USD: 1.1671

Sterling and the euro enter Wednesday's London session in narrow ranges, with GBP/USD consolidating just below 1.3640 and EUR/USD recovering modestly to 1.1671 after Tuesday's dip to 0.8546 on the EUR/GBP cross. The FTSE 100 is expected to open higher after gaining 0.3% on Tuesday to close at 10,886, with positive sentiment supported by falling oil prices and easing concerns over the Strait of Hormuz. The dominant driver today is the 13.30 London release of US July PCE inflation, which will set the tone heading into Warsh's Friday address.

Overnight & Market Tone:

The euro edged up for a second consecutive day against sterling on Wednesday, trading in the middle of its monthly range, as traders bide their time awaiting the US PCE figures with the calendar in both the eurozone and the UK practically void. EUR/GBP touched a session low of 0.8546 on Tuesday before recovering to 0.8560, implying GBP/EUR moved from a high near 1.1700 back toward 1.1680. The VIX stands at 15.45, down 2.5% on the session, and Brent crude futures are trading in a range of $85.01 to $86.10 per barrel, a meaningful retreat from last week's highs that is supporting risk appetite across equities and keeping energy-driven inflation fears in check. The pound has been trading above $1.36 in the final full week of August, near its strongest level since mid-February, as the US dollar has faced pressure following the US Treasury's plan to at least double its purchases of longer-dated government bonds.

UK Data & Bank of England:

There is no scheduled UK data today, leaving sterling to trade on external drivers. The most recent domestic release of note remains the July CPI print from 19 August. UK CPI rose to 2.9% in the twelve months to July 2026, up from 2.6% in June, with the increase driven by the Ofgem energy price cap rise rather than underlying demand; core CPI was unchanged at 2.6% and services inflation fell to 3.4% from 3.6%. That composition gives both camps on the MPC something to argue with ahead of the 17 September decision.

The Bank of England held Bank Rate at 3.75% on 30 July 2026, on a 6-3 vote, with three members voting to raise it to 4%; the next decision is on 17 September 2026. The three dissenters were Megan Greene, Catherine Mann, and Huw Pill. SONIA OIS markets currently price a move of approximately +7 basis points at the September MPC meeting, implying roughly a 28% probability of a 25bp hike to 4.00% and a 72% probability of another hold. 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. The BoE's 150bp rate advantage over the ECB remains sterling's principal structural support, but the narrowing of the hiking premium in OIS pricing suggests the market is not yet willing to price a full hike on the back of the July CPI data alone.

European Backdrop & EUR/USD:

Tuesday's German data provided a constructive backdrop for the euro, even if the FX reaction was muted. German GDP grew 0.3% quarter-on-quarter in Q2, revised up from a preliminary estimate of 0.2%, with growth primarily driven by strong exports. The Ifo Business Climate Index rose to 88.8 in August from an upwardly revised 86.7 in July, well above the Reuters consensus forecast of 87.2. Ifo President Clemens Fuest noted that "despite the renewed rise in energy prices, the German economy is recovering." Germany nonetheless continued to grow more slowly than the EU as a whole, which expanded 0.5% quarter-on-quarter, and one upgraded GDP figure should not be confused with a return to strong growth.

On monetary policy, the ECB raised its deposit facility rate to 2.25% in June 2026, a 25bp increase driven by war-related inflation pressures. The next ECB Governing Council decision is scheduled for 10 September 2026. Eurozone inflation fell to 2.8% in June from 3.2% in May, which has materially undercut the case for further ECB rate hikes. Market pricing implies an 88% probability that the ECB holds its deposit rate at 2.25% on 10 September, meaning the ECB-Fed rate differential narrative is currently running in the dollar's favour rather than the euro's.

For EUR/USD specifically, the pair is consolidating near 1.1671 after showing little immediate response to Tuesday's Ifo beat, with EUR/USD marginally lower near 1.1660 at the time of that release. The pair has recovered modestly into Wednesday's London open, but remains well within the recent 1.1640-1.1700 range. The structural tension is clear: ING's analysis flags that EUR/USD weakness reflects a wider Fed-ECB policy divide, with the Fed still debating a September hike while the ECB is widely expected to hold. Today's PCE print is the immediate catalyst; a reading above the 3.3% core consensus would likely push EUR/USD back toward 1.1640 support, while a miss could allow a retest of 1.1700. Treasurers with direct EUR/USD exposures should note that the pair's near-term direction will be set almost entirely by US data and Warsh's Friday tone rather than any European catalyst this week.

US Backdrop:

Consensus expects overall PCE to rise 0.07% month-on-month in July, with the year-on-year figure rising to 3.6%. Core PCE is expected to rise 3.3% year-on-year, flat from June, and 0.2% month-on-month. If the numbers match those estimates, the debate over whether the Federal Reserve should lift its benchmark interest rate in September will remain unresolved. September rate hike odds sit near 40% as of 25 August and can move quickly on data between now and Warsh's speech. The recently released FOMC minutes showed Warsh is seriously considering reducing the number of meetings to six from eight, and his Jackson Hole speech is likely to be aimed at a high level, outlining his views on the evolution of central banking. A structural or institutional speech rather than a direct rate signal would likely leave the dollar little changed, but any lean toward inflation concern would be read as hawkish given current positioning.

Technical Picture:

GBP/USD: Resistance at 1.3650 (intraday high this week), then 1.3700 (psychological). Support at 1.3600 (round number and recent pivot), then 1.3560 (last week's base).
GBP/EUR: Resistance at 1.1700 (Tuesday's high), then 1.1740 (recent one-year high per Cambridge Currencies). Support at 1.1650 (Tuesday's low, EUR/GBP 0.8580 equivalent), then 1.1620.
EUR/USD: Resistance at 1.1700 (this week's ceiling), then 1.1740 (mid-August high). Support at 1.1640 (Tuesday's low), then 1.1600 (round number).
Outlook: All three pairs are in tight consolidation ahead of today's PCE and Friday's Warsh speech; the path of least resistance for GBP/USD and EUR/USD is sideways-to-slightly-lower into the data, with a break of 1.3600 or 1.1640 respectively signalling a more meaningful dollar recovery.

Today's Calendar:

The 13.30 PCE release is the session's pivotal event; a core reading above 3.3% would sharpen the case for a September Fed hike, likely lifting the dollar across all three pairs and pushing GBP/USD and EUR/USD toward their respective lower supports ahead of Friday.

Outlook:

GBP/USD and EUR/USD are likely to remain range-bound through the European morning before the 13.30 PCE print sets the directional tone; a hot reading above consensus would favour a stronger dollar into Friday, while an in-line or soft print would leave both pairs near current levels and shift all attention to Warsh. The key risk scenario for UK treasurers is a hawkish PCE surprise followed by a hawkish Warsh speech, which could push GBP/USD toward 1.3560 and EUR/USD below 1.1600 before the weekend; those with unhedged USD payables should consider whether current levels represent an acceptable entry point ahead of that binary 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.