GBP/USD + GBP/EUR Market Update

UK GDP Beats, USD Firms on CPI Eve as GBP/USD Slips to 1.3516 and EUR/USD Tests Post-ECB Lows, Friday, 11 September 2026

GBP/USD: 1.3516 | GBP/EUR: 1.1647 | EUR/USD: 1.1605

Britain's economy grew 0.4% in July, according to figures from the Office for National Statistics released this morning, comfortably beating the Reuters poll consensus of flat growth and providing a constructive backdrop for sterling ahead of the MPC meeting on 17 September. The ECB's 25bp hike on Thursday was fully priced and produced only a muted EUR/USD reaction, leaving the pair consolidating just above 1.1600 as all attention pivots to today's US CPI at 13.30 London.

Overnight & Market Tone:

GBP/USD is currently trading at 1.3505, with today's range so far running from 1.3495 to 1.3519, a pullback from Thursday's close near 1.3554 as the dollar firmed broadly on rising Treasury yields and pre-CPI positioning. The US dollar staged a firm recovery, snapping recent losses as rising Treasury yields and strong producer price data reinforced expectations for upcoming Federal Reserve tightening. GBP/EUR is trading at approximately 1.1637, while EUR/USD is around 1.1608, both pairs holding within tight ranges as markets await the inflation print. Renewed energy-price pressures are adding to the inflation outlook, with Brent crude hitting $105 a barrel and European gas prices reaching fresh three-and-a-half-year highs amid escalating Middle East tensions. The FTSE 100 is near 10,671, broadly flat in early trade.

UK Data & Bank of England:

This morning's ONS release is the week's standout domestic data point. UK GDP grew 0.4% in July, accelerating from 0.3% in June and no growth in May; on the year-on-year measure, GDP rose 1.6%, well above the 1.0% expected. The ONS noted that services output offset contractions in production and construction, extending the economy's run of three-month growth to eight consecutive periods; monthly growth followed 0.3% in June and no growth in May, while on the three-month measure GDP rose 0.4% against the three months to April, with services up 0.6% and production and construction each down 0.5%. Governor Bailey told a parliamentary committee earlier this week that economic data since the BoE's July forecast had come in "a bit stronger" than he had expected. The stronger activity data reinforces the case for the hawkish minority on the MPC. 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 scheduled decision is 17 September, with OIS markets currently pricing a move of approximately +7 basis points at that meeting, implying roughly a 28% probability of a 25bp hike to 4.00%, though today's GDP beat and the energy-driven inflation trajectory could nudge that higher into next week. The BoE expects inflation to rise to around 3.2% later this year as the conflict pushes oil prices above $105 a barrel with knock-on impacts on government borrowing costs.

European Backdrop & EUR/USD:

The ECB hiked its main refinancing rate to 2.65% on 10 September as widely expected, citing inflation above target. Lagarde did not commit to a specific interest rate path but stated that the energy shock generated by the conflict in the Middle East may not have been fully transmitted into the European economy; these comments align with August inflation data showing eurozone CPI close to 3.3%, a new high for 2026 and moving further away from the ECB's 2.0% target. While Lagarde maintained a more hawkish tone, she reiterated that future decisions will remain data-dependent and avoided committing to additional rate hikes over the coming months. Markets now price another ECB hike by December and further tightening in 2027. Growth forecasts were upgraded to 0.9% for 2026 and 1.4% for 2027, reflecting greater-than-expected resilience in the euro area economy. On EUR/USD specifically: the market's reaction to the ECB meeting was muted, as the decision was known to the market weeks in advance, so there was no real surprise. The euro slipped below the 1.1612 mark following the ECB's widely expected 25bp increase, a classic "buy the rumour, sell the fact" response. The pair now sits at 1.1605, near the lower end of the week's 1.1600-1.1660 range, with the ECB rate differential story largely digested. The dominant near-term driver for EUR/USD has shifted entirely to the Fed side: traders are focused almost exclusively on Fed policy, having largely ignored the ECB raising key rates twice in 2026, and are now waiting for Fed tightening. A hot US CPI print today (consensus: headline 3.4% year-on-year, core 2.4% year-on-year per Kiplinger) risks pushing EUR/USD through 1.1570 support toward 1.1520; a soft reading could see a relief rally back toward 1.1650-1.1660. The divergence in policy between the ECB and BoE may continue to shrink by end-2026, with the ECB likely to hike again in December while the timing of the BoE's next move remains less clear, a dynamic that limits scope for sharp GBP/EUR moves in either direction near-term.

US Backdrop:

The FOMC policy statement and press conference land on 16 September, and this is also a Summary of Economic Projections meeting, meaning the Fed's updated dot plot will land alongside whatever decision it makes. August PPI rose 0.4% as wholesale inflation reached 5.4%, with energy and diesel prices driving much of the increase, reinforcing the hawkish case ahead of today's CPI. Headline CPI is expected to be up 0.4% month-on-month and 3.4% year-on-year; core CPI is forecast to rise 0.4% month-on-month and 2.4% year-on-year. Hawkish comments from Chair Warsh emphasising the need for further progress on price stability, alongside elevated energy costs tied to Middle East supply disruptions, have reinforced expectations for tighter policy.

Technical Picture:

GBP/USD: Resistance at 1.3554 (Thursday high), then 1.3600 and the 52-week high zone near 1.3869. Support at 1.3495 (today's session low), 1.3450, and 1.3400.
GBP/EUR: Resistance at 1.1660 (mid-week high), then 1.1700. Support at 1.1620, then 1.1580. Range trading persists with EUR/GBP finding resistance near 0.8610 (equivalent to GBP/EUR 1.1628) per ActionForex technical analysis.
EUR/USD: Resistance at 1.1640 (post-ECB recovery high), then 1.1660 and 1.1700. Support at 1.1570, then 1.1520; a sustained break below 1.1570 would open the way toward 1.1480.
Outlook: All three pairs are in consolidation mode ahead of the 13.30 CPI release; a hot print is the higher-impact tail risk, with GBP/USD and EUR/USD both vulnerable to a sharp leg lower if core CPI surprises to the upside, while GBP/EUR is likely to remain anchored given both central banks face similar inflation dynamics.

Today's Calendar:

The 13.30 US CPI release is the session's sole market-moving event: as the last inflation update the Fed will see before next week's policy meeting, any surprise relative to consensus will directly reprice FOMC hike odds and move all three pairs sharply.

Outlook:

With the ECB decision now in the rear-view mirror and UK GDP having delivered a positive surprise, the week closes with sterling in a modestly constructive position, though GBP/USD faces a binary outcome around 13.30: the September 11 CPI release remains the key near-term catalyst that could either solidify Fed hike odds or support a no-change outcome if readings show clearer cooling. Treasurers with USD payables due next week should consider whether current GBP/USD levels around 1.3516 represent an acceptable rate ahead of what could be a volatile FOMC meeting on 16 September and MPC decision on 17 September; those with EUR exposures face a quieter near-term risk profile, with GBP/EUR likely to hold the 1.1600-1.1660 band absent a significant CPI shock.

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.