GBP/USD + GBP/EUR Market Update

Budget Eve Weighs on GBP; EUR Steady as ECB Hold Looms; FOMC Hold Consensus Anchors USD, Tuesday, 27 October 2026

GBP/USD: 1.3324 | GBP/EUR: 1.1943 | EUR/USD: 1.1156

GBP/USD fell to 1.3324 on 27 October 2026, down 0.14% from the previous session, as pre-Budget caution and a broadly steadier dollar weighed on sterling overnight. The FTSE 100 was down around 1% in early London trade, with HSBC weakness and Budget and FOMC caution cited as the primary drags. EUR/USD is holding in a narrow band near 1.1156-1.1172, with both the ECB decision (Thursday) and the FOMC (tomorrow evening) keeping the pair in a holding pattern.

Overnight & Market Tone:

GBP/USD is trading around 1.3333 in early London, GBP/EUR near 1.1940, and EUR/USD near 1.1169 as of the morning snapshot, with all three pairs showing modest negative bias versus Monday's close. EUR/GBP is consolidating at 0.8375, a few pips above year-to-date lows, with analyst commentary suggesting the pair can remain offered in a 0.8360-0.8430 range given residual French political risk. The 10-year gilt yield is trading around 5.34%, easing from Monday's close of 5.36%, consistent with the headline from Trading Economics that UK 10-year gilt yields are easing ahead of the Budget announcement. Brent crude for the January contract is near $111/bbl in early trade, pulling back from last week's multi-year highs but remaining a significant inflation input for the BoE's November deliberations.

UK Data & Bank of England:

The most important domestic data point of the week is already in the rear-view mirror. The UK's annual inflation rate rose to 3.5% in September 2026, its highest since October 2025, up from 3.1% in August and above the consensus expectation of 3.4%. Fuel prices were the biggest driver, but core inflation (which strips out energy, food, alcohol and tobacco) climbed from 2.6% to 2.8%, and the CPI all-services index rose by 3.7% in the 12 months to September 2026, up from 3.4% in August. The services print in particular matters for the MPC: one analyst commentary noted that September's rise is "likely to have been followed by another jump in October, with higher energy prices lifting inflation towards 3.8%, before fresh energy bill rises in January drive it close to 4.5%." Against that backdrop, the current market-implied probability of a 25bp hike at the 5 November MPC meeting stands at 95%, per SONIA futures pricing. The MPC held Bank Rate at 3.75% at its most recent meeting on 17 September 2026, on a 6-3 vote, with three members voting for a rise. Fidelity International's eurozone economist has said the MPC will likely hike at November and February, bringing Bank Rate to 4.25%, before remaining on hold for a period. The Budget is the wildcard: with the Autumn Budget on 28 October followed closely by the Bank of England's decision on 5 November, further movement in gilt pricing is possible over the coming days.

European Backdrop & EUR/USD:

The ECB holds its Governing Council meeting today and tomorrow, with the rate decision due Thursday. For the meeting on 29 October 2026, market pricing implies a 97% probability of no change, with the deposit facility rate expected to remain at 2.50%. The ECB raised the deposit rate to 2.50% effective 16 September 2026, the second increase of the year after a move to 2.25% in June. The rate decision is due at 14:15 CET on Thursday, followed by President Lagarde's press conference at 14:45 CET. With a hold near-certain, the press conference language will be the primary EUR mover: any signal that the hiking cycle is pausing, or that growth concerns are gaining weight on the Governing Council, could weaken EUR/USD further. The euro fell to 1.1312 in October 2026 due to toxic stagflation pressures, widening European sovereign debt spreads, and capital flight to higher-yielding US assets before recovering to current levels. The French political backdrop remains a secondary constraint: analyst commentary suggests the euro still has plenty of room to drop on French politics, with EUR/GBP seen remaining offered.

For EUR/USD specifically, the pair is trading around 1.1156-1.1172, sandwiched between two central bank decisions. The ECB-Fed rate differential is the structural anchor: the ECB deposit rate at 2.50% sits 125bp below the Fed's 3.75-4.00% target range, a gap that has been a persistent headwind for EUR/USD since the Fed's September hike. Financial markets anticipate the Fed will hold in October before potentially pursuing another rate hike in December, with the CME FedWatch Tool reflecting a 90.6% probability of a rate pause at the October meeting alongside a 79.7% chance of a rate increase in December. If the FOMC statement tomorrow evening signals a December hike remains live, the rate differential widens further and EUR/USD faces renewed downside pressure. Conversely, any dovish tilt from Lagarde on Thursday could push the pair lower still. Treasurers with direct EUR/USD exposures should note that the pair's current range of approximately 1.1100-1.1200 could be tested from either direction within 48 hours.

US Backdrop:

According to the CME FedWatch Tool, traders assign about a 90% probability that the Federal Reserve holds its target range at 3.75% to 4.00% on 28 October 2026, having raised rates to that level at its September meeting. A roughly 10% chance of a further 25bp hike remains priced in, with CME FedWatch data also showing close to an 80% probability of a December increase. This is a non-SEP meeting, with no updated economic projections or dot plot released alongside the decision, so the statement language and any press conference signals on the December path will be the primary USD driver. The dollar's tone this morning is modestly firm, consistent with the market's "hold now, hike in December" base case keeping the currency supported without generating fresh momentum.

Technical Picture:

GBP/USD: Resistance at 1.3348 (Monday's open), then 1.3388 (Monday's intraday high) and 1.3408 (last week's four-week peak). Support at 1.3293 (retail rate proxy low seen this morning), then 1.3187 (lower bound of today's indicative forecast range per exchangerates.org.uk) and 1.3135 (recent 30-day low).
GBP/EUR: Resistance at 1.1959 (23 October high, the 180-day period peak per exchangerates.org.uk), then 1.2000 (psychological). Support at 1.1904 (retail rate proxy low this morning), then 1.1863 (19 October low) and 1.1834 (16 October low).
EUR/USD: Resistance at 1.1207 (Monday's open), then 1.1236 (22 October high) and 1.1250 (recent cap). Support at 1.1100 (round number), then 1.1089 (BoE reference rate 21 October) and 1.1000 (psychological).
Outlook: GBP/USD and GBP/EUR are both consolidating in well-defined ranges ahead of tomorrow's Budget and FOMC; a gilt sell-off on fiscal concerns would be the most likely catalyst for a break lower in GBP/USD, while a hawkish FOMC statement is the primary risk to EUR/USD support.

Today's Calendar:

The German IFO reading at 9.00am is the most market-relevant release today for EUR crosses, given the ECB meeting is live; a further deterioration in business confidence would reinforce the case for a prolonged ECB pause and could nudge EUR/USD lower ahead of Thursday's decision.

Outlook:

The directional bias for GBP/USD into tomorrow's Budget is modestly negative: an earlier date and little leaking could make this the least predictable Budget in years, and any upside surprise on borrowing or fiscal loosening could push gilt yields higher and weigh on sterling, while a tighter-than-expected fiscal stance could provide a brief relief rally. For EUR/USD, the pair is likely to remain range-bound today before the FOMC statement tomorrow and Lagarde's press conference on Thursday define the next directional move; treasurers with EUR payables should consider that a hawkish FOMC combined with a cautious ECB could push EUR/USD towards the 1.1100 area by end of week.

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.