GBP/USD + GBP/EUR Market Update

Warsh Takes the Podium: GBP/USD Holds 1.3589 and EUR/USD Steadies at 1.1648 as Markets Brace for Fed Chair's Debut Keynote, Friday, 28 August 2026

GBP/USD: 1.3589 | GBP/EUR: 1.1666 | EUR/USD: 1.1648

All three pairs have entered Friday's London session in tight overnight ranges, with GBP/USD barely a pip above Thursday's 1.3588 close, GBP/EUR nudging a fraction higher to 1.1666, and EUR/USD slipping to 1.1648 as the dollar steadied near a one-week high ahead of the Warsh keynote. Reuters noted on Friday morning that "the US dollar held flat near a one-week high against major peers" as markets awaited the Jackson Hole address. The dominant driver for the remainder of the session is straightforward: Warsh delivers 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, making his remarks potentially the tiebreaker for monetary policy direction in the months ahead.

Overnight & Market Tone:

Overnight price action was characteristically subdued ahead of a high-impact event, with GBP/USD ranging between approximately 1.3575 and 1.3602 in Asian trade before settling back toward the 1.3589 figure. GBP/EUR has edged modestly higher from Thursday's 1.1659 close, reflecting a marginal softening in the euro rather than any fresh sterling catalyst. Brent fell to $88.22 per barrel on 28 August, down 0.34% from the previous day, though it held above $88 after rebounding in the prior session, as escalations in the Russia-Ukraine war shifted market attention from the Middle East toward Eastern Europe. The VIX was last quoted near 15.5, consistent with cautious rather than panicked positioning. FTSE 100 futures point to a flat-to-marginally-positive open, with energy and commodity names providing modest support from the firmer oil backdrop, offset by the weight of elevated gilt yields on rate-sensitive sectors.

UK Data & Bank of England:

There are no tier-one UK data releases today, leaving the domestic agenda thin. The BoE's policy backdrop remains the key sterling anchor. The Bank held Bank Rate at 3.75% on 30 July, with the MPC voting 6-3 to hold; the three dissenters (Megan Greene, Catherine Mann, and Huw Pill) each preferred a 25 basis-point rise to 4.00%, marking one more hawkish dissent than June's 7-2 and two more than April's 8-1, with the minority pushing for higher rates having grown at three consecutive meetings. The Bank's central projection at the 30 July meeting 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" but cautioning that events in the Middle East could change the outlook. The next scheduled BoE rate decision is 17 September 2026, with OIS currently pricing a move of approximately +7 basis points at that meeting - implying roughly a 28% probability of a 25bp hike and a 72% probability of a hold. That pricing is sensitive to today's Warsh speech: a hawkish Fed outcome that pushes UST yields higher would likely drag gilt yields up with them, potentially nudging BoE hike odds wider and providing a modest sterling tailwind via rate-differential compression versus the euro.

European Backdrop & EUR/USD:

The ECB's rate path has shifted materially since the spring, and the September Governing Council meeting (11 September) is now the focal point for EUR positioning. The ECB voted in July to leave its main rate unchanged at 2.25%, but traders are already anticipating a rate hike in September, after President Lagarde warned that renewed Middle East hostilities and the resultant rebound in oil prices pose upside risk to the eurozone inflation outlook. Bloomberg reported that Lagarde laid the groundwork for a possible rate hike in September after the ECB rejected an immediate move in July, with Lagarde noting that some colleagues raised the question of whether to act at that meeting, before the Governing Council unanimously kept the deposit rate at 2.25% and pledged to look closely at new data. A September ECB move is now almost fully priced in, and unless energy prices ease materially, that view is unlikely to change. DWS senior economist Ulrike Kastens expects the ECB to raise its deposit rate to 2.50% in September, citing continued volatility in energy markets.

For EUR/USD specifically, the pair sits at 1.1648 this morning, broadly in the middle of its August range and marginally softer than Thursday's 1.1655 close. The cross is caught between two competing forces: ECB tightening expectations (EUR-supportive) and the possibility that Warsh signals a hawkish Fed lean today (USD-supportive, EUR-negative). Goldman Sachs noted that, historically, the Jackson Hole keynote has tended to significantly amplify foreign exchange market volatility, and with Warsh's policy stance not yet fully clear, EUR/USD could become one of the most sensitive trading windows. The ECB-Fed rate differential currently sits with the Fed funds target at 3.50%-3.75% versus the ECB deposit rate at 2.25%, a gap of roughly 125-150 basis points in the dollar's favour; any Warsh signal that widens that gap further would weigh on EUR/USD, while a dovish surprise would narrow it and push the pair back toward 1.1700 and beyond. Eurozone data has been mixed: ECB staff project GDP growth of 0.8% in 2026, with risks tilted to the downside given the energy shock and trade uncertainty. Fiscal and political news from the continent is relatively quiet this morning, with no major German or French releases scheduled.

US Backdrop:

Policymakers from the Fed and various central banks will gather in Jackson Hole today, with Warsh delivering his widely anticipated speech this morning; Warsh has taken steps to end the use of forward guidance about future policy moves, including the removal of forward-looking language. Warsh gave investors limited insight into his economic views after the July policy meeting and avoided offering forward guidance on interest rates, with the market interpreting that communication as a lack of clarity on the path back to the inflation target, while long-term bond yields subsequently moved higher. US inflation remains stubbornly above the Fed's 2% target at 3.4%, while economic growth shows signs of cracking under the weight of trade tensions and geopolitical uncertainty. The 10-year UST yield was last around 4.70%, consistent with levels seen in mid-August, and the dollar index (DXY) is holding near 98.7. The US calendar today is otherwise light, with the Warsh keynote (15.00 London) the sole scheduled market mover.

Technical Picture:

GBP/USD: Resistance at 1.3620 (Thursday's intraday high), then 1.3640 (Wednesday's close) and 1.3680 (August range high). Support at 1.3560 (this week's low), then 1.3530 and 1.3490.
GBP/EUR: Resistance at 1.1680 (Wednesday's close), then 1.1700 and 1.1730. Support at 1.1650, then 1.1620 and 1.1590.
EUR/USD: Resistance at 1.1670 (Thursday's high), then 1.1700 and 1.1730 (top of August range). Support at 1.1620, then 1.1590 and 1.1550.
Outlook: All three pairs are compressing into tight pre-event ranges, with the technical picture subordinate to the Warsh keynote; a hawkish surprise would likely see GBP/USD test 1.3530 and EUR/USD probe 1.1590, while a dovish or neutral outcome would reopen 1.3640 and 1.1700 respectively.

Today's Calendar:

The Warsh keynote at 15.00 London is the only event that matters today; the eurozone CPI flash print at 10.00 will set the tone for EUR/USD in the morning session and could shift ECB September pricing if it surprises materially in either direction.

Outlook:

The asymmetry identified in Thursday's commentary remains intact: the consensus is exactly what makes Friday's address more consequential than usual, because when 69% of fund managers surveyed by Bank of America expect a neutral tone, neutral is already priced in - meaning the surprise is the only thing that moves markets. Treasurers with USD payables should consider whether existing hedges are adequate before 15.00; those with EUR exposures should note that a hawkish Warsh outcome would likely push EUR/USD lower even as ECB September hike pricing remains firm, creating a window to buy euros at a relative discount ahead of the 11 September ECB decision.

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.