GBP/USD + GBP/EUR Market Update

Hawkish FOMC Minutes Lift Dollar to 18-Month Highs; GBP/USD Slips Toward 1.3200 as Gilt Yields Hold Near Multi-Decade Peaks, Thursday, 08 October 2026

GBP/USD: 1.3201 | GBP/EUR: 1.1793 | EUR/USD: 1.1198

Wednesday's FOMC minutes, covering the September meeting at which the Fed raised rates 25 basis points to 3.75-4.00%, struck a notably hawkish tone, with most participants signalling inflation remains the dominant risk and a further hike likely before year-end; the dollar index held near 102.23 in Asian trade, keeping GBP/USD pinned at 1.3199-1.3201 and EUR/USD near 1.1197-1.1201. Today's primary catalysts are the ECB's September meeting accounts (published this morning), US initial jobless claims (12.30pm BST, consensus 200K), and a speech by ECB Chief Economist Philip Lane (10.00am BST).

Overnight and Market Tone:

The dollar held near its strongest level in approximately 18 months in subdued Asian trade after hawkish FOMC minutes signalled policymakers view inflation as the biggest risk to their outlook; the dollar index was steady at 102.23 after rising 0.3% on Wednesday. GBP/USD fell to 1.3199, down 0.11% from the prior session. GBP/EUR was quoted at 1.1787, down 0.12% on the day, with EUR/USD at 1.1197. Equity sentiment is cautious: the FTSE 100 was last quoted at 10,458, down from 10,542 in the prior session. Brent crude futures are trading around $101.42, up $1.22 on the session, sustained by Middle East supply concerns. The VIX closed at 15.08 on Wednesday, with an intraday range of 14.97-16.01, indicating contained but watchful risk sentiment.

UK Data and Bank of England:

There are no scheduled UK data releases today. The next major domestic prints are the ONS monthly GDP estimate on 15 October and CPI on 21 October. UK CPI rose to 3.1% in August from 2.9% in July, with core CPI holding at 2.6% and services inflation unchanged at 3.4%. That combination of above-target headline and sticky services inflation is central to the MPC's dilemma. Bank Rate stands at 3.75%, held throughout 2026 and most recently confirmed at the September meeting on 17 September. OIS markets imply a move of approximately +21 basis points at the next MPC meeting on 5 November, with an 83% probability of a hike and 17% probability of a hold. MPC member Catherine Mann, in a speech at the Nomura London Macro Forum on 1 October, discussed how UK financial markets have priced in greater risk premia since the Middle East conflict intensified, and examined how monetary policy communication can help reduce those premia to ensure inflation returns to target. Gilt yields remain a critical constraint on the fiscal backdrop: the 10-year gilt yield is above 5.4%, with an intraday range today of 5.4128%-5.494%. Surging gilt yields have pushed 10- and 30-year rates to multi-decade highs, trimming Chancellor Healey's fiscal headroom by approximately £12 billion ahead of the 28 October Budget. The OBR estimates every one-percentage-point rise in yields adds roughly £15 billion a year to debt-interest costs by 2030, meaning the current yield level is mechanically eroding the room available to the Chancellor before a single spending decision is taken. The OBR's Economic and Fiscal Outlook is due on 28 October alongside the Budget itself.

European Backdrop and EUR/USD:

The ECB deposit facility rate stands at 2.50% from 16 September 2026, following two 25-basis-point hikes in 2026. The ECB raised rates at its September meeting, citing the Middle East conflict as continuing to fuel inflationary pressures, with inflation expected to remain well above its 2% target for an extended period. At the September press conference, ECB President Christine Lagarde did not commit to any further rate path, stating the Governing Council had not discussed future steps and decides meeting by meeting, depending on the data. The next ECB decision is on 29 October. OIS pricing as of 5 October implied only a 28% probability of a further hike at that meeting, with the implied post-meeting rate at approximately 2.57%, a markedly more cautious market pricing than the BoE's near-certain hike expectation. This ECB-BoE divergence is one reason GBP/EUR has held relatively firm even as GBP/USD has softened. Today's ECB September meeting accounts are the key intraday event for EUR pairs: markets will scrutinise the language around the inflation-growth trade-off and any dissent on the pace of further tightening. The ECB's accounts and a speech by Chief Economist Philip Lane are on the agenda for today. On the data front, euro area inflation in August 2026 was 3.3% (flash estimate), with core inflation at 2.4%, both above the ECB's 2% target. Renewed Houthi attacks on Saudi Arabian energy infrastructure have driven Brent above $100, intensifying worries about the eurozone's economic outlook, since the bloc is a net energy importer and higher oil prices act as a stagflationary shock. The euro had briefly bounced from near year-to-date lows as France's 10-year OAT yield dropped 17 basis points earlier in the week, but that recovery has faded. For EUR/USD specifically, the pair is trading near a 17-month low in the 1.117-1.119 area, compressed between a hawkish Fed and an ECB that has signalled caution about further tightening. Over the past month, EUR/USD has weakened 3.74%. Treasurers with direct EUR/USD exposures should note that the pair is testing the lower boundary of its recent range, and a hawkish read of today's ECB accounts could provide a modest EUR bid, while any softening language would reinforce downside pressure toward the 1.1150-1.1100 area.

US Backdrop:

Wednesday's FOMC minutes did little to shift expectations that the Fed will refrain from hiking at its October meeting; fed funds futures are pricing an implied 19% probability of a 25-basis-point hike at the meeting ending 28 October, unchanged from a day earlier. The FOMC raised the federal funds target range by 25 basis points to 3.75%-4.00% at the September meeting, noting that economic activity has expanded at a solid pace while inflation remains elevated relative to the 2% goal. Futures markets are pricing the rate to rise to about 4.1% by January 2027, indicating expectations that policy will remain restrictive as the Fed assesses inflation and growth. Today's US initial jobless claims (12.30pm BST, consensus 200K vs prior 197K) are the main scheduled data release and could shift short-end UST yields and, by extension, the dollar.

Technical Picture:

GBP/USD: Resistance 1.3250 (near-term cap, confirmed by multiple sessions), then 1.3300. Support 1.3183 (recent double bottom), then 1.3140 (year-to-date low area).
GBP/EUR: Resistance 1.1830 (Wednesday's session high), then 1.1870. Support 1.1750, then 1.1700. EUR/GBP has been on a roughly nine-day losing streak from the 0.8500 area, with bears targeting the 16-month low at 0.8455 (equivalent to GBP/EUR 1.1820) and 0.8410 (GBP/EUR 1.1891) as a potential next downside level.
EUR/USD: Resistance 1.1250, then 1.1300. Support 1.1150, then 1.1100. The pair has been compressing toward the lower end of its multi-week range near 1.1190-1.1200.
Outlook: GBP/USD has built a base near the 1.3183-1.3200 area, with a double bottom suggesting near-term support, but a break of 1.3183 on a strong US jobless claims print or further dollar strength would open a test of the year-to-date lows; EUR/USD remains the more vulnerable pair to further downside given the ECB's more cautious stance relative to the Fed.

Today's Calendar:

The ECB accounts are the primary EUR catalyst today; any indication that the Governing Council debated pausing rather than hiking further at the October meeting would weigh on EUR/USD and could push GBP/EUR modestly higher, while a hawkish read reinforcing the case for a 29 October hike would offer the euro a degree of support.

Outlook:

GBP/USD is likely to remain range-bound between 1.3183 and 1.3250 in the near term, with the 28 October Budget and OBR fiscal outlook acting as a structural ceiling on any sterling recovery as gilt yields remain near multi-decade highs and OIS markets price an 83% probability of a BoE hike on 5 November. EUR/USD faces the greater downside risk of the three pairs: the ECB's cautious meeting-by-meeting stance, the Fed's hawkish minutes, and elevated Brent crude acting as a eurozone growth drag all point toward a test of the 1.1150 area if today's US data surprises to the upside or the ECB accounts disappoint EUR bulls.

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.