GBP/USD + GBP/EUR Market Update

Warsh Eve Nerves Pull GBP/USD to 1.3588 as Brent Slides on Hormuz Diplomacy and Revised US PCE Adds Fuel to September Hike Debate; Thursday, 27 August 2026

GBP/USD: 1.3588 | GBP/EUR: 1.1659 | EUR/USD: 1.1655

Sterling has drifted roughly 45 pips lower from Wednesday's 1.3632 close as pre-Warsh positioning and a firmer dollar on the back of the revised PCE data weigh on risk appetite ahead of the London open. Brent fell to $86.93 per barrel on 27 August, down 1.03% from the previous session, extending its decline to a fourth straight session amid signs of diplomatic progress in the Middle East, with Iran and Oman reaching an agreement over each country's share of the Strait of Hormuz's waters. EUR/USD has slipped from 1.1671 to 1.1655, consistent with broad USD firmness rather than any euro-specific catalyst.

Overnight & Market Tone:

GBP/USD traded an overnight range of approximately 1.3575-1.3610, with the pair unable to reclaim Wednesday's highs as the dollar drew support from the revised PCE print. GBP/EUR has eased from 1.1680 to 1.1659, consistent with the broader pattern of the week: over the last seven days the GBP/EUR market rate has averaged 1.1679, with a high of 1.1689 and a low of 1.1668. Risk sentiment is cautious but not alarmed: the S&P 500 VIX stood at 15.50, with Brent Oil futures at $87.03 and the Dollar Index near 98.88 in late US trade, suggesting markets are in a holding pattern ahead of tomorrow's keynote. UK 10-year gilt yields fell below 5%, hovering at their lowest level since 14 August, as falling oil prices raised hopes that the Strait of Hormuz could reopen, easing concerns over inflation. That modest gilt rally provides a small supportive backdrop for sterling.

UK Data & Bank of England:

There are no tier-one UK data releases today, leaving sterling to trade on global risk themes and positioning ahead of Warsh. The domestic backdrop remains defined by the BoE's July meeting outcome: 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 three dissenters were Megan Greene, Catherine Mann and Huw Pill. That hawkish minority is significant: the Bank's central projection showed CPI inflation peaking at around 3.2% in 2026 Q4, with the MPC noting that "risks to the inflation outlook are tilted to the upside." Money markets continue to price in one Bank of England rate hike by year-end, with another 25-basis-point increase expected by early 2027; inflation rose to 2.9% in July, its highest since March, while core inflation reached 2.6%. OIS pricing derived from SONIA futures implies approximately 7 basis points of tightening at the next scheduled Bank of England rate decision on 17 September 2026, with the market currently pricing a move of +7bp at that MPC meeting. That translates to roughly a one-in-three probability of a 25bp hike at September's meeting, a level that keeps sterling supported on dips but limits aggressive upside until the inflation trajectory becomes clearer. 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, a divergence from market pricing that reflects the asymmetric risk environment created by the Middle East energy shock.

European Backdrop & EUR/USD:

The ECB voted at its July meeting to leave its main interest rate unchanged at 2.25%, but traders are already anticipating a rate hike in September, as ECB President Christine Lagarde warned that renewed Middle East hostilities and the resultant rebound in oil prices pose upside risk to the eurozone inflation outlook. Lagarde laid the groundwork for a possible interest-rate hike in September after the Governing Council rejected an immediate move, with some colleagues having raised the question of whether to act at the July meeting itself. Eurozone inflation eased to 2.8% in July from 3.2% in May, though Lagarde said the bank anticipates inflation to remain "well above target" until the first half of 2027. The ECB had cut rates eight times from September 2023, bringing the benchmark rate back to 2%, before policymakers resumed raising rates in June 2026. The ECB's September meeting (11 September) is therefore a live risk for EUR crosses: a 25bp hike to 2.50% is broadly expected, and any signal that the Governing Council is prepared to go further would be EUR-positive. ECB staff projections see headline inflation at 3.0% this year, 2.3% in 2027 and 2.0% in 2028. For EUR/USD specifically, the pair sits at 1.1655 this morning, having retreated from its recent high of 1.1699 seen earlier in the week. The pair's near-term direction is being pulled in two directions: a potentially hawkish ECB in September argues for EUR support, while a hawkish Warsh tomorrow would deliver a sharp USD rally that would dominate. The ECB-Fed rate differential is currently modest, with the ECB deposit rate at 2.25% versus the Fed funds target range, and both central banks in tightening mode. Rising gilt yields also reflected broader pressure across global bond markets, following a similar move in US Treasuries as the initial boost from the US Treasury's expanded buyback programme faded, a dynamic that has kept EUR/USD capped below 1.17 this week. Markets are closely monitoring Jackson Hole for Fed Chair Warsh's keynote speech after long-term borrowing costs hit a near-two-decade high last week and the Treasury's bond market intervention; Warsh is due to speak on Friday, with market watchers expecting what he says, or doesn't say, to shape investors' expectations for Fed policy. For treasurers with direct EUR/USD exposures, the pair's range of 1.1640-1.1700 has been remarkably stable this week; a break of 1.1640 support on a hawkish Warsh would open 1.1580, while a dovish surprise could retest 1.1720.

US Backdrop:

The BEA reported that real GDP increased at an annual rate of 1.5% in Q2 2026, according to its second estimate released on 26 August, following a 2.1% increase in the first quarter. The price index for gross domestic purchases was revised up 0.1 percentage point to 5.8%, while the PCE price index rose 5.3% (revised up 0.2pp) and core PCE increased 3.6%, also revised up 0.2pp. That upward revision to core PCE is the key FX driver today: Fed Chair Warsh will deliver his first keynote address as Fed Chair on Friday, 28 August, just three weeks before the critical September FOMC meeting, with markets pricing in roughly one-in-three odds of a September rate hike. The recently released FOMC minutes showed Warsh is seriously considering reducing the number of meetings to six from eight, a structural signal of a more deliberate policy approach that adds to the uncertainty around tomorrow's speech. Today's US calendar includes weekly initial jobless claims (13.30 London), which will be the last significant data point before Warsh speaks.

Technical Picture:

GBP/USD: Resistance at 1.3610, then 1.3640 (Wednesday's high) and 1.3680. Support at 1.3575, then 1.3540 and 1.3500.
GBP/EUR: Resistance at 1.1680, then 1.1700 and 1.1720. Support at 1.1640, then 1.1610 and 1.1580.
EUR/USD: Resistance at 1.1680, then 1.1700 and 1.1720. Support at 1.1640, then 1.1600 and 1.1570.
Outlook: All three pairs are consolidating in tight pre-event ranges; the technical picture is secondary to tomorrow's Warsh speech, with a hawkish surprise the higher-impact scenario given that a neutral tone is already largely priced in across GBP/USD, GBP/EUR and EUR/USD.

Today's Calendar:

The 13.30 US jobless claims print is the most market-sensitive release today; a materially weaker-than-expected number would reinforce the hawkish case ahead of Warsh and could push GBP/USD below 1.3575 into the New York open.

Outlook:

GBP/USD and EUR/USD are likely to remain range-bound through today's London session as participants hold positions ahead of tomorrow's Warsh keynote, with the revised core PCE at 3.6% having already shifted the balance of risk modestly in favour of a stronger dollar. Treasurers with USD payables should treat today as a final opportunity to layer in hedges before tomorrow's 15.00 London speech, where a hawkish surprise - signalling openness to a September hike or a structurally higher neutral rate - could push GBP/USD toward 1.3500 and EUR/USD toward 1.1580 in short order.

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.