GBP/USD + GBP/EUR Market Update

Post-Warsh Reckoning: GBP/USD Slips to 1.3536 and EUR/USD Holds Near 1.1596 as September Hike Odds Climb on Both Sides of the Atlantic, Tuesday, 01 September 2026

GBP/USD: 1.3536 | GBP/EUR: 1.1673 | EUR/USD: 1.1596

Sterling and the euro have entered the first trading day of September under modest but persistent pressure from a stronger US dollar, itself buoyed by Fed Chair Kevin Warsh's unexpectedly hawkish remarks at the Jackson Hole symposium last Friday. GBP/USD trades in negative territory around 1.3545 during the early European session on Tuesday, while EUR/USD struggles to capitalise on the overnight bounce and drifts near 1.1600 in European trading hours. Today's key event is the Eurostat flash HICP estimate for August, which will directly shape ECB pricing ahead of the 10 September decision.

Overnight and Market Tone:

The UK stock market returns after the Summer Bank Holiday with the FTSE 100 facing mixed signals from rising oil prices, global bond yields and renewed geopolitical tensions; the blue-chip index closed the previous session at 10,824.26, with early indications pointing to a near-flat opening. Brent crude moved around $90.84 a barrel early Tuesday and later crossed the $91 mark, adding to inflation concerns that are already elevated across all three currency blocs. The UK 10-year gilt yield rose to 5.21% on 1 September, marking a 7 basis-point increase from the previous session and its highest level since June 2008, reflecting the combined weight of Warsh's hawkishness, Brent above $90, and a growing BoE minority pushing for 4.00%. Risk sentiment is cautious: the US dollar edges higher against sterling amid ongoing Middle East tensions and hawkish expectations around the Fed's interest rate outlook.

UK Data and Bank of England:

The Bank of England held Bank Rate at 3.75% on 30 July 2026 (6-3 vote), and the next decision is 17 September. The three dissenters (Megan Greene, Catherine Mann and Huw Pill) each preferred a 0.25-point rise to 4.00%; that is one more hawkish dissent than June's 7-2 and two more than April's 8-1, meaning the minority pushing for higher rates has grown at three meetings running. The next scheduled BoE rate decision is on 17 September 2026, with the market currently pricing a move of approximately +7bp at that MPC meeting, implying roughly a 28% probability of a 25bp hike. UK CPI has run above the 2% target through 2026, with services inflation the main sticking point, and with Brent now above $91, the energy pass-through risk is tilting the balance further toward the hawks. Market participants will also be keen to digest BoE Monetary Policy Hearings ahead of Governor Andrew Bailey's speech on 4 September, which may provide clearer forward guidance on whether the committee is moving toward a September hike. The UK manufacturing PMI final reading for August is due this morning and will be watched for any sign that the energy cost surge is biting into output.

European Backdrop and EUR/USD:

The ECB's policy trajectory is the most consequential near-term driver for EUR/USD. The ECB raised its three key interest rates by 25 basis points in June 2026, bringing the deposit facility rate to 2.25%, its first hike in almost three years. At the July meeting, rates were left unchanged at 2.25%, but the September meeting is a different matter. Most analysts expect a 0.25-percentage-point increase at the ECB's 10 September meeting, with a further hike later this year remaining a distinct possibility. OIS markets currently price an 85.6% probability of a rate hike at the 10 September meeting, with no probability assigned to a cut. The key input to that decision arrives today: the flash estimate of euro area inflation for August 2026 is scheduled for 1 September 2026. Euro area annual inflation was 2.9% in July 2026, up from 2.8% in June, driven primarily by energy. Energy was the highest annual rate component in July at 10.0%, followed by services at 3.3%. A print at or above 2.9% today would effectively seal a September ECB hike and provide a near-term floor for the euro. German two-year yields have climbed to their highest level since July 2024 as markets strengthened bets on a September ECB hike, compressing the EUR/USD rate differential in the euro's favour relative to where it stood before the Middle East conflict. For EUR/USD specifically, the pair is caught between two competing forces: an ECB that is almost certainly hiking on 10 September (euro-supportive) and a Fed that may hike on 16 September (dollar-supportive). EUR/USD struggled to capitalise on an overnight bounce from the 100-day SMA near the 1.1575-1.1580 region and trades around the 1.1600 mark, down nearly 0.10% for the day, amid modest US dollar strength. The net effect is a pair that is range-bound rather than directional: the ECB hike is more fully priced (85%) than the Fed hike (60%), which argues for modest EUR/USD support on dips, but the dollar's safe-haven bid from Middle East tensions caps the upside. Treasurers with direct EUR/USD exposures should note that the August HICP print is the single most important data point for this pair today: a surprise to the upside could push EUR/USD back toward 1.1650, while a downside miss would test the 1.1575 support.

US Backdrop:

Fed Chair Warsh used his Jackson Hole speech to give a more hawkish reading of inflation than he did after the July meeting, recommitting to the Fed's 2% PCE inflation target and saying elevated prices should be the central bank's main focus. The CME FedWatch Tool now shows a 66% probability of a 25bp hike at the September FOMC meeting, up sharply from below 40% before the speech. Barclays anticipates two more rate hikes this year, in September and December, totalling 50 basis points. Today's US calendar is relatively light (ISM Manufacturing PMI, construction spending), meaning the dollar's near-term direction will be shaped more by the Eurostat HICP print and any Fed speakers than by domestic data.

Technical Picture:

GBP/USD: Resistance at 1.3589 (Friday's pre-Warsh high), then 1.3632 (Wednesday 26 August close). Support at 1.3500 (round number and recent intraday low), then 1.3429 (cluster of 50/100/200-day SMAs per FXStreet).
GBP/EUR: Resistance at 1.1700 (round number), then 1.1720. Support at 1.1650 (recent range floor), then 1.1612 (Q3 consensus target cited by Scotiabank).
EUR/USD: Resistance at 1.1648 (Friday's London close), then 1.1671 (26 August high). Support at 1.1575-1.1580 (100-day SMA, overnight bounce zone), then 1.1550.
Outlook: GBP/USD has been broadly bullish through August as bets on Fed tightening eased, but the range since May 2025 has been defined by 1.3200 on the bottom and 1.3700 on the top; with Warsh now hawkish and the BoE minority growing, a sustained break above 1.3600 requires either a softer US CPI or a dovish BoE surprise. EUR/USD's near-term bias is neutral-to-slightly-supported given the ECB's higher hike probability relative to the Fed, but Middle East risk-off keeps the pair capped.

Today's Calendar:

The 10.00am Eurostat flash HICP is the session's pivotal release: with OIS markets pricing an 85% probability of an ECB hike on 10 September, any upside surprise to the August print would cement that expectation and provide EUR/USD with a meaningful bid, while a downside miss would reopen the debate and pressure the pair back toward 1.1575.

Outlook:

The next nine trading days are among the most event-dense of the year: the ECB meets on 10 September (hike near-certain), the BoE on 17 September (hike probability rising), and the FOMC on 16 September (hike now the base case per CME FedWatch). With all three central banks potentially tightening within a single week, the cross-pair volatility risk is unusually high, and treasurers should review open hedges accordingly. The key downside risk for GBP/USD and EUR/USD is a US CPI print (due 10 September) that confirms Warsh's hawkish narrative and pushes Fed hike odds toward 80%, while the key upside scenario is a softer August HICP today that causes markets to partially unwind the ECB hike premium, lifting EUR/USD and compressing the dollar broadly.

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.