GBP/USD + GBP/EUR Market Update

Hormuz Flare-Up Lifts Brent to $95 and Presses GBP/USD to 1.3511 as Triple Central-Bank Countdown Tightens, Wednesday, 02 September 2026

GBP/USD: 1.3511 | GBP/EUR: 1.1669 | EUR/USD: 1.1579

GBP/USD has slipped a further 25 pips from Tuesday's close to 1.3511, extending the post-Warsh slide that began last Friday, as renewed US military strikes near the Strait of Hormuz pushed Brent to $94.86 on 2 September and reinforced the dollar's safe-haven and inflation-premium bid. EUR/USD is holding just below 1.1580, with Tuesday's eurozone HICP flash cementing ECB hike expectations and providing the euro modest support against sterling. Today's key catalysts are the US ADP employment report and, later this week, Friday's non-farm payrolls, both of which will sharpen or soften the Fed's September calculus.

Overnight and Market Tone:

The FTSE 100 opened 0.34% lower and the DAX opened 0.22% lower as risk appetite remained subdued following the overnight escalation in the Middle East. Brent rose about 5% to near $95 a barrel on Tuesday, the highest since late July, after the US military launched new strikes against Iranian targets around the Strait of Hormuz, and President Trump threatened a significantly larger response if Tehran retaliates. Gilt yields are tracking USTs higher in early trade, with the 10-year gilt holding in the upper 4.70s% area consistent with the hawkish repricing that has characterised the post-Warsh session; the US 10-year yield climbed to approximately 4.76%, its highest level since January 2025, pulling global sovereign curves with it. Risk sentiment is fragile, and the VIX remains elevated, keeping demand for the dollar firm across the board.

UK Data and Bank of England:

There are no tier-one UK data releases today, leaving sterling to trade on the broader macro backdrop. The most recent domestic data points remain the reference frame: July CPI climbed to 2.9% and services inflation is running at 3.4%, while the increase in headline CPI came from the Ofgem energy price cap rise rather than underlying demand, with core CPI unchanged at 2.6% and services inflation actually falling from 3.6%. That compositional split continues to give both camps on the MPC ammunition. The MPC held Bank Rate at 3.75% on 30 July by six votes to three, with Megan Greene, Catherine Mann, and Huw Pill all voting to raise Bank Rate to 4.00%. The next decision is on 17 September. OIS markets currently price a move of approximately +7bp at that meeting, implying roughly a 28% probability of a 25bp hike, a level that could shift materially if Friday's US payrolls data or any pre-MPC UK release surprises. A Reuters poll conducted 13-18 August found that nearly 90% of economists (56 of 64) expect the MPC to leave rates unchanged at 3.75% for the rest of the year, though the hawkish minority on the committee and the energy-driven inflation trajectory mean the 17 September meeting cannot be dismissed as a formality. Governor Bailey is scheduled to speak on Friday 4 September, a slot that in past episodes has either amplified or faded the payrolls move in European rates into the close.

European Backdrop and EUR/USD:

Tuesday's Eurostat flash estimate was the decisive data point for the ECB's September meeting. Eurozone inflation climbed to 3.3% in August 2026, up from 2.9% in July, according to a flash estimate from Eurostat, driven largely by energy as global oil and gas prices surged amid the war in Iran and disruption to shipping through the Strait of Hormuz. Energy inflation reached 14.3% in August, compared with 10.3% in July, while services inflation eased to 3.0% from 3.3%. The services softening is the one nuance that prevents the data from being unambiguously hawkish, and Oxford Economics noted that "unlike markets, we think it is too early to pencil in a third hike, especially given that underlying price pressures remain contained for now." Nevertheless, the data strengthened expectations for an ECB rate hike as soon as this month, with markets fully pricing a 25bp increase to 2.50%. According to a Reuters poll, 57 of 69 economists expect the ECB to hike its deposit rate by 25bp to 2.50% in September. The ECB's July minutes reinforced this framing: the minutes emphasised that the July pause should not be interpreted as the end of the tightening cycle, with another hike likely unless the inflation outlook improves significantly, while policymakers wanted to keep the September decision open. For EUR/USD specifically, the pair is caught between two competing forces. The ECB hike is now so fully priced that it provides limited additional upside for the euro on its own; what matters is the relative pace of tightening versus the Fed. Market pricing reflects these crosscurrents, with futures assigning roughly 57-66% odds to a Fed quarter-point move in September versus a still-viable hold. If the Fed delivers and the ECB does not signal further action beyond September, the rate differential could tighten modestly in the dollar's favour, keeping EUR/USD capped below 1.1600. Conversely, any softness in US data this week that reduces Fed hike odds would allow EUR/USD to recover toward 1.1620-1.1640. The pair's current 1.1579 level sits near the lower end of its recent range, and the energy-driven inflation backdrop means the ECB's forward guidance on 10 September will be as important as the rate decision itself for EUR/USD direction. A currency held up by a rate differential is only as strong as that differential, which is why the 10 September ECB meeting matters more to GBP/EUR than any UK release between now and then. For GBP/EUR, the pair is holding near 1.1669, with the 150bp BoE-ECB rate advantage providing a floor but a confirmed ECB hike narrowing that gap to 125bp and putting pressure on the cross toward 1.1600.

US Backdrop:

Fed Chair Warsh's stance at Jackson Hole was unexpectedly hawkish, and traders of fed funds futures now see a 60.4% chance of a quarter-point hike in September. Warsh highlighted "concerning" inflation figures, with the PCE index at 3.7% and 4.1% over 12 and 6 months respectively, well above the 2% target. Barclays anticipates two more rate hikes this year, in September and December, totalling 50 basis points. Today's ADP employment report (13.15 London) is the first significant US labour-market reading of the week and will be closely watched as a directional signal ahead of Friday's non-farm payrolls; a strong print would firm September hike odds further and add to dollar support across all three pairs.

Technical Picture:

GBP/USD: Resistance at 1.3550, then 1.3600 and the August range high near 1.3675. Support at 1.3490, then 1.3425 and 1.3365.
GBP/EUR: Resistance at 1.1700, then 1.1730. Support at 1.1640, then 1.1600 (key pre-ECB level).
EUR/USD: Resistance at 1.1600, then 1.1640 and 1.1680. Support at 1.1555, then 1.1520 and the 100-day moving average near 1.1480.
Outlook: The immediate technical picture for GBP/USD is neutral-to-cautious and range-bound rather than directional, with the pair needing a close above 1.3550 to shift the near-term bias; EUR/USD faces a similar ceiling at 1.1600, and a break below 1.1555 would open a test of August lows.

Today's Calendar:

The 1.15pm ADP print is the session's pivotal release: ISM manufacturing, JOLTS, ADP, and Challenger all print before the jobs report, a run that has tended to pre-position the market so that payrolls confirm or correct rather than surprise from a flat base, meaning a strong ADP number today could meaningfully firm the dollar into Thursday and Friday.

Outlook:

With the ECB meeting on 10 September, the FOMC on 16 September, and the BoE on 17 September all now live events, the next fortnight is the highest-risk period of the year for all three pairs; the bias for GBP/USD and EUR/USD remains to the downside while Brent holds near $95 and Fed hike odds stay above 60%, though any softness in this week's US labour data could provide a brief corrective bounce. Treasurers with USD payables should treat the current 1.3511 level as an active hedging window rather than a floor, given that a confirmed Fed hike on 16 September, combined with an ECB hike on 10 September that narrows the BoE-ECB spread, could push GBP/USD toward 1.3365-1.3425 and GBP/EUR toward 1.1600 before month-end.

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.