GBP/USD + GBP/EUR Market Update

US CPI Beats Expectations, Reviving Fed Hike Fears; GBP and EUR Recover Intraday as Dollar Spike Fades, Thursday, 15 October 2026

GBP/USD: 1.3244 | GBP/EUR: 1.1813 | EUR/USD: 1.1211

The dollar spiked to new cycle highs on the release of the hot US CPI numbers, but that move was fully reversed late Wednesday and into early Thursday trading, with EUR/USD bottoming at 1.1113 on Wednesday before rising as high as 1.1240 in Asian hours. Asian stocks tumbled on a chip and AI sell-off as the hot CPI revived Fed hike fears, with the 10-year Treasury yield jumping to around 5.28%. The focus today shifts to US retail sales and PPI at 15.30 BST, and a scheduled speech by Bank of England Governor Andrew Bailey at 10.30am.

Overnight & Market Tone:

GBP/EUR traded between a session low of 1.1801 and a high of 1.1830 on 15 October, with the pair opening around 1.1827 from Wednesday's close. GBP/USD rose to 1.3243 on 15 October, up 0.38% from the previous session. The VIX rose 10.48% to 16.87 on the hot US inflation print, with the front of the curve moving hardest. Brent crude traded near $104.4 a barrel on Thursday 15 October, down about $1.63 or 1.5% from Wednesday's settlement of $106.06. The FTSE 100 is indicated modestly firmer in early trade, taking its cue from the partial stabilisation in gilt yields after Wednesday's CPI-driven volatility; gilt yields were still down across the curve this morning, moves fuelled by comments from BoE Chief Economist Huw Pill on Wednesday, which caused traders to cut their bets on interest rate hikes.

UK Data & Bank of England:

There are no tier-one UK data releases today. The next significant domestic print is the ONS September CPI report, due on Wednesday 21 October 2026 at 7.00am. The most recent reading showed headline CPI at 3.1% in the 12 months to August, with core CPI holding at 2.6% and services inflation at 3.4%. The Bank's own forecasting projects CPI reaching 3.75% by end-2026 and edging just above 4% at the start of 2027. That trajectory is the central reason markets remain biased towards a November hike. The MPC held Bank Rate at 3.75% on 17 September in a 6-3 vote, with three members voting for a rise to 4%. Megan Greene, Catherine Mann and Huw Pill voted for an immediate rise to 4%. However, as noted in yesterday's commentary, Pill's subsequent public scepticism about the market's four-hike pricing has introduced a nuance: while Pill said he was sceptical as to whether four quarter-point hikes were actually needed, he also made more hawkish remarks that were supportive of some tightening in the near term. At 13 October, market pricing made a quarter-point rise at the 5 November meeting the clear favourite, at roughly an 88% chance against 12% for a hold, with the SONIA curve having the first rise fully priced by December. Governor Bailey speaks at 10.30am today; any softening of his language on the pace of tightening could weigh on GBP/USD and GBP/EUR. The Autumn Budget on 28 October, when Chancellor John Healey will deliver the Budget alongside the OBR's economic and fiscal forecast, adds a further layer of domestic uncertainty ahead of the 5 November MPC decision. The Chancellor's first task will be to rebuild fiscal headroom, with estimates suggesting movements in bond yields and interest rates have roughly halved the buffer to around £14 billion.

European Backdrop & EUR/USD:

The ECB's deposit facility rate stands at 2.50%, effective from 16 September 2026. The ECB raised its key rates by 25 basis points at its September meeting, its second hike since the US-Iran conflict began, noting that the conflict continues to fuel inflationary pressures with inflation expected to remain well above its 2% target for an extended period. The bloc has held up better than expected, but resilience is not overheating, and even at 2.50% the deposit rate remains within the range the ECB considers neutral. The next Governing Council decision is on 29 October, a non-projection meeting. Market pricing implies an 87% probability of no change at that meeting, with only a 13% chance of a further hike to 2.75%. That cautious ECB stance, set against a Fed that has already moved to 3.75-4.00% and retains a residual hike bias, keeps the ECB-Fed rate differential firmly in the dollar's favour at the policy level, which is the structural headwind for EUR/USD.

On EUR/USD specifically, the pair has shown notable resilience. EUR/USD bottomed at 1.1113 on Wednesday before rising as high as 1.1240 in Asian trading Thursday, settling back toward 1.1215. EUR/USD was quoted at 1.1212 in early European trade, up 0.5% on the day. The pair's ability to recover fully from the CPI-driven dollar spike is significant: it suggests the market had already partially priced a hot print, and that the Fed's cautious post-September messaging is capping the dollar's upside. According to CME FedWatch as of 14 October, there is a 79.3% probability that the Fed will maintain rates at the 28 October meeting. With the ECB also widely expected to hold on 29 October, the near-term EUR/USD driver is less about central bank divergence and more about risk sentiment, energy prices, and whether the dollar's safe-haven bid from elevated yields can be sustained. Treasurers with direct EUR/USD exposures should note that the pair is holding above the psychologically important 1.1100-1.1115 zone established on Wednesday; a break below that level would reopen the October lows and signal a more durable dollar recovery.

US Backdrop:

US September CPI came in at 3.7% year-on-year, with gasoline prices a key driver. FOMC minutes released 7 October indicated that most officials viewed another rate increase by year-end as likely appropriate, though subsequent policymaker comments suggested the Fed could proceed cautiously rather than immediately at the 28 October meeting. The FOMC blackout period begins Saturday 17 October, so any last signals from Fed officials must come before then. Today's US calendar (15.30 BST) brings September retail sales, PPI, and weekly jobless claims, which will be the final significant data inputs before the blackout. A further upside surprise in retail sales or PPI would likely reignite dollar demand and pressure both GBP/USD and EUR/USD.

Technical Picture:

GBP/USD: Resistance at 1.3264 (Wednesday's high), then 1.3290 and 1.3310. Support at 1.3200 (round-number floor), then 1.3180 and the 1.3140 area.
GBP/EUR: Resistance at 1.1830 (today's session high), then 1.1837 (week high, 14 October). Support at 1.1800 (today's session low), then 1.1788 (monthly low).
EUR/USD: Resistance at 1.1240 (Asian session high), then 1.1290 (20-period EMA per FXStreet). Support at 1.1114 (14 October low), below which the psychological 1.1000 level comes into view.
Outlook: All three pairs are consolidating after Wednesday's CPI-driven volatility; GBP/USD and EUR/USD have reclaimed their pre-CPI levels, but the recovery lacks conviction ahead of this afternoon's US data, and a fresh upside surprise could reassert dollar dominance across the board.

Today's Calendar:

The 13.30 BST US data cluster is the dominant event of the day; a stronger-than-expected retail sales or PPI print would likely reignite dollar demand and test the overnight recovery in GBP/USD and EUR/USD, while a soft outcome would consolidate the post-CPI reversal and allow both pairs to hold current levels into the weekend.

Outlook:

The next fortnight is exceptionally event-dense: UK September CPI (21 October), the Autumn Budget and OBR forecast (28 October), the FOMC decision (28 October), and the ECB meeting (29 October) all precede the 5 November BoE decision with its accompanying Monetary Policy Report. GBP/USD bias remains cautiously constructive so long as Bailey does not materially soften the BoE's tightening signal today, but the pair is unlikely to sustain a break above 1.3290 without a clear dollar softening catalyst; the key downside risk for both GBP/USD and EUR/USD remains a further upside surprise in US data or any escalation in Middle East tensions that pushes Brent back towards $106-$110 and reignites safe-haven dollar demand.

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.