GBP/USD + GBP/EUR Market Update

Retail Sales Miss Weighs on GBP; EUR/USD Steady Ahead of Twin Central Bank Week; USD Supported by FOMC Hold Consensus, Friday, 23 October 2026

GBP/USD: 1.3376 | GBP/EUR: 1.1945 | EUR/USD: 1.1198

Sterling has pulled back modestly from its recent highs after the ONS confirmed a -0.4% monthly fall in September retail sales volumes, a softer outcome than the market had anticipated following August's upwardly revised +0.7% gain. EUR/USD is broadly steady at 1.1215 this morning, contained by the prospect of an ECB hold next Wednesday and a USD that retains support from a near-certain FOMC pause on 28 October. The dominant theme for the week ahead is a triple risk event: the UK Budget, the FOMC, and the ECB, all within a 24-hour window.

Overnight & Market Tone:

GBP/USD fell to 1.3391 on 23 October, down 0.07% from the previous session, consistent with our database spot of 1.3376 as the retail sales release weighed on early London trading. Thursday's session saw GBP/USD close at 1.3397, having ranged between 1.3355 and 1.3419 intraday, so today's softness represents a modest retracement rather than a trend reversal. The 10-year gilt yield is trading near 5.4492%, up 1.23 basis points on the day, reflecting persistent BoE hike expectations and keeping the rate-support argument for sterling broadly intact. The VIX spot is at 19.21 as of this morning, with a prior close of 19.03, indicating a modest uptick in caution ahead of next week's central bank events. Brent crude rose to $113.61 per barrel on 23 October, up 0.39% from the previous day, a continued elevation that sustains UK inflation concerns and reinforces the BoE tightening narrative. FTSE 100 futures are pointing to a cautious open near 10,725, with risk appetite tempered by oil prices and the looming policy calendar.

UK Data & Bank of England:

Today's key domestic release has delivered a modest disappointment. Retail sales volumes are estimated to have fallen by 0.4% in September 2026, reversing part of the 0.7% rise recorded in August (itself revised up from an initial 0.5% estimate). The ONS noted that mail order retail sales fell as online clothing retailers cited warmer weather denting autumn and winter range demand, while supermarket sales also declined following growth in July and August. On a quarterly basis, however, the picture is more constructive: retail sales volumes rose by 0.7% in Q3 2026 compared with Q2, suggesting the consumer backdrop has not deteriorated materially. The monthly miss is unlikely to shift the BoE's calculus significantly given the weight of evidence already accumulated this week: September CPI came in at 3.5% year-on-year (above the 3.4% consensus) and the labour market beat of +102k employment in the prior release have both reinforced the case for tightening. As of 22 October, SONIA OIS pricing implies a 97% probability of a BoE hike at the 5 November MPC meeting, with a market-implied move of +24 basis points from the current Bank Rate of 3.75%. The MPC held Bank Rate at 3.75% on 17 September in a 6-3 vote, with three members voting for an immediate rise to 4%. Greene, Mann, and Pill were the three dissenters, all voting for a rise to 4%, and the 5 November meeting will also be accompanied by a new Monetary Policy Report, making it the most significant policy event of the quarter. The retail sales miss may provide the six-member hold bloc with a marginal reason for caution, but the inflation and wage data are likely to dominate the MPC's deliberations.

European Backdrop & EUR/USD:

On 10 September 2026, the ECB raised all three key rates by 25 basis points, taking the deposit facility rate to 2.50%, the main refinancing rate to 2.65%, and the marginal lending rate to 2.90%. The Governing Council's next monetary policy meeting is scheduled for 28-29 October, with the press conference on 29 October. For that meeting, market pricing implies a 93.0% probability of no change, with rates held at 2.50%. The ECB's September statement flagged that the inflation outlook and its risks, alongside incoming economic and financial data, would govern future decisions, and the Governing Council appears in no hurry to extend its tightening cycle after back-to-back hikes since June. EUR/USD fell 3.55% from the ECB's 10 September reference rate by 5 October 2026, with the Federal Reserve matching the ECB's 25bp increase on 16 September, meaning the rate differential did not narrow on net. That symmetry in September's moves has left EUR/USD in a range-bound posture, with the pair struggling to sustain gains above 1.1250 this week. French OAT spread stress, which briefly pushed French 10-year yields toward 5% earlier this week, has eased marginally but remains a structural drag on EUR sentiment; any renewed fiscal anxiety in Paris ahead of the ECB meeting could cap EUR/USD further. Over the past month, EUR/USD has weakened 1.45% and is down 3.56% over the last 12 months, reflecting the cumulative drag of a more hawkish Fed path relative to ECB expectations. For treasurers managing direct EUR/USD exposures, the pair is currently trading near the lower end of its recent 1.1198-1.1250 range. A hold from the ECB on 29 October is near-fully priced, so the press conference language on the December meeting path will be the key driver; any signal that the Governing Council is open to a further hike in December could provide a modest EUR/USD lift, while a dovish hold would likely see the pair retest support near 1.1150. The FOMC decision the day before (28 October) adds a further layer of complexity: Kalshi and Polymarket put a quarter-point Fed hike at about 6% and a hold at about 94% as of 23 October, so a hold is near-certain, but Chair Powell's press conference language on the December meeting will be scrutinised for any shift in the Fed's reaction function. A more hawkish-than-expected Fed tone could push EUR/USD back toward 1.1150, while a neutral or cautious tone could allow a modest recovery toward 1.1250.

US Backdrop:

The Fed's most recent decision, on 16 September 2026, raised the federal funds rate to 4.00%, up 25 basis points from 3.75%. The October 2026 FOMC meeting runs 27-28 October, with the rate decision announced on Wednesday 28 October at 2:00pm ET (7:00pm London). This is a non-SEP meeting, with no updated economic projections or dot plot released alongside the decision, meaning the statement language and Powell's press conference will carry additional weight for USD direction. With a hold near-certain, the USD's near-term trajectory will hinge on whether the Fed signals December as a live meeting for further tightening; any such signal would support the dollar broadly and weigh on both GBP/USD and EUR/USD into month-end.

Technical Picture:

GBP/USD: Resistance at 1.3408 (Thursday's intraday high and four-week peak), then 1.3419 (22 October session high). Support at 1.3355 (Thursday's intraday low), then 1.3306 (19 October close).
GBP/EUR: Resistance at 1.1960 (round-number area), then 1.1980. Support at 1.1918 (early London print today), then 1.1887 (20 October close).
EUR/USD: Resistance at 1.1250 (this week's cap), then 1.1280. Support at 1.1150 (post-September ECB hike low area), then 1.1100.
Outlook: GBP/USD remains in a constructive medium-term posture supported by BoE hike pricing, but the retail sales miss and the proximity of next week's triple risk event argue for consolidation in the 1.3355-1.3420 range today; EUR/USD is likely to remain anchored near 1.1200 until the FOMC and ECB decisions provide fresh directional impetus.

Today's Calendar:

With both the FOMC and ECB in blackout and today's data calendar now cleared, GBP/USD direction will be driven by positioning flows and oil-price dynamics; the retail sales miss is the sole fresh catalyst and is unlikely to materially shift BoE expectations given the weight of this week's CPI and employment data.

Outlook:

GBP/USD is likely to consolidate in the 1.3355-1.3420 range into the weekend, with the 97% BoE hike probability providing a floor but the retail sales miss and pre-Budget caution capping upside; the key risk scenario is a Budget on 28 October that reveals a larger-than-expected fiscal loosening, which could reignite gilt yield pressure and weigh on sterling even as the BoE hike narrative remains intact. For EUR/USD, the pair is anchored near 1.1200 ahead of a binary week in which the sequencing of FOMC (28 October) then ECB (29 October) decisions will determine whether the pair breaks above 1.1250 or tests support toward 1.1150; treasurers with EUR/USD exposures should consider using today's relative calm to review hedge ratios before next week's volatility window opens.

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.