GBP/USD + GBP/EUR Market Update

Budget Day and FOMC Hold Consensus Weigh on GBP/USD; EUR Steadies Ahead of Tomorrow's ECB; Brent Above $115 Keeps Inflation Premia Elevated, Wednesday, 28 October 2026

GBP/USD: 1.3291 | GBP/EUR: 1.1948 | EUR/USD: 1.1124

GBP/USD has continued to lose ground, trading near 1.3291 in early European hours, as market participants adopt a risk-averse stance ahead of the UK Budget and the Federal Reserve's interest rate decision later today. EUR/USD has also declined, trading around 1.1120 in early European trade. The key question for all three pairs is whether today's twin events confirm or disrupt the prevailing narrative of a fiscally credible UK Budget and a Fed hold that keeps December tightening in play.

Overnight & Market Tone:

GBP/USD is quoted at 1.3288, down 0.14% on the day, while GBP/EUR sits at 1.1946, off 0.13%. The FTSE 100 is trading around 10,670, down 0.12% as of early morning, with sentiment subdued ahead of the dual event risk. Brent crude has risen above $115 per barrel, up 1.43% on the day, with the price up over 20% in the past month as Middle East tensions continue to drive energy inflation expectations higher, reinforcing the case for further central bank tightening across all three jurisdictions. The VIX closed at 18.39 on Monday, reflecting a market that is cautious but not in distress ahead of today's events. The 10-year gilt yield rose to 5.37% this morning, up 2 basis points from Tuesday's close, a level that will be closely watched by the OBR as it finalises its fiscal forecasts for publication alongside the Budget.

UK Data & Bank of England:

Chancellor John Healey will present his first Budget to the House of Commons today, 28 October 2026. The speech is scheduled to begin at 12.30pm, following Prime Minister's Questions. The OBR will publish its updated Economic and Fiscal Outlook simultaneously, setting out revised forecasts for growth, inflation, borrowing, and debt. Pre-briefed measures include a rise in the National Living Wage to over £13 per hour, with the rate expected to increase from £12.71 to £13.20, a 3.9% uplift to the state pension, and the removal of import tariffs on over 100 products. The Chancellor faces a difficult economic backdrop, with pressure on public finances compounded by higher borrowing costs linked to turmoil in international markets following the Iran war. For FX, the gilt market's reaction to the OBR's debt and borrowing projections will be the primary transmission mechanism: a credible fiscal consolidation path should cap gilt yields and provide modest support to GBP, while any upward revision to borrowing that spooks the long end could push GBP/USD back toward 1.3250. On the monetary policy side, the Bank of England held Bank Rate at 3.75% at its September meeting in a 6-3 vote, with Greene, Mann and Pill voting for an immediate rise to 4%. As of 27 October, OIS pricing implies a 94% probability of a 25 basis point hike at the 5 November MPC meeting, a level of conviction that continues to provide a floor under sterling on dips, provided today's fiscal statement does not materially alter the growth or inflation outlook that underpins that pricing.

European Backdrop & EUR/USD:

The ECB is expected to keep its key deposit rate unchanged at 2.50% at its meeting tomorrow, 29 October, as conflicting economic forces complicate the outlook, with eurozone inflation having reached 3.8%. At the September meeting, the ECB hiked by 25 basis points to take the deposit rate to 2.50%, reiterating that it is not pre-committing to a particular rate path and will follow a data-dependent, meeting-by-meeting approach. In a Reuters poll conducted in early October, 70 of 73 economists expected the ECB to hold at 2.50%, while 64 expected a further quarter-point rise in December, a sharp shift from the previous survey when most thought the tightening cycle had ended. Analysts surveyed by Bloomberg expect the ECB to make one final increase, taking the deposit rate to 2.75% in December. Guidance is likely to remain data-dependent and meeting-by-meeting, with both dovish and hawkish risks present from French fiscal concerns and energy prices respectively; France is likely to dominate the press conference Q&A, and a hawkish surprise would be unexpected in this context.

For EUR/USD specifically, the pair enters today's session under meaningful pressure. The euro has been on track to be the worst-performing developed-market currency in October, down 1.70% against the US dollar. EUR/USD has been extending its decline and trading around 1.1130, weighed down by a firm US dollar, elevated energy prices, concerns over French public finances, and weaker eurozone growth signals. The ECB's September rate hike has not provided the expected support: EUR/USD fell in each of the four weeks following the 10 September decision, sliding from 1.1616 on decision day to 1.1204 by early October. Record short positioning in the euro leaves EUR/USD vulnerable to a short squeeze if today's FOMC statement is interpreted as less hawkish than feared, or if tomorrow's ECB press conference signals a more aggressive December path than currently priced. Treasurers with direct EUR/USD exposures should note that the pair is caught between two central banks both leaning toward further tightening, with the Fed's December hike probability running higher in market pricing than the ECB's, which explains the persistent USD bid. A hold-and-signal outcome from Warsh tonight that keeps December firmly in play would likely extend EUR/USD weakness toward 1.1100; a softer tone could trigger a short-covering rally back toward 1.1200.

US Backdrop:

The Fed is widely expected to hold interest rates at 3.75%-4.00% today, following September's 25 basis point increase; a Reuters survey found 94 of 100 economists expect no change, while all 100 forecast another hike in December. The FOMC decision is due at 6.00pm London time, with Fed Chair Kevin Warsh holding a press conference 30 minutes later. With no updated interest rate projections scheduled for October, Warsh's remarks and any dissenting votes will be the primary market mover, with the dollar likely to strengthen if he signals December tightening is firmly on the table, and to soften if he emphasises the conflicting signals from September's 3.7% CPI print and the weak 29,000 nonfarm payrolls figure.

Technical Picture:

GBP/USD: Resistance at 1.3350/55 (broken support, now capping), then 1.3390-1.3415. Support at 1.3300 (October 19th low), with risk of a retreat to the 1.3250/75 range on a sustained break below.
GBP/EUR: Resistance at 1.1960 (recent session high) and 1.1980. Support at 1.1900/1.1902 (Monday's intraday low), then 1.1863.
EUR/USD: The first downside target is at 1.1100; immediate resistance is seen at 1.1205. Secondary resistance at 1.1150 (100-day SMA area).
Outlook: The technical setup for GBP/USD is characterised as "neutral/bearish," with the pair retaining a soft undertone below the 100-day SMA. EUR/USD shares a similar negative bias below its own 100-day SMA; both pairs are likely to remain range-bound until the FOMC statement resolves the directional question this evening.

Today's Calendar:

The 12.30pm Budget speech and the 6.00pm FOMC decision together make this the highest-event-density session of the year for GBP, EUR, and USD exposures; treasurers should ensure all time-sensitive hedges are in place before the Chancellor rises.

Outlook:

The near-term bias for GBP/USD remains softly negative into the Budget, with the pair at risk of testing 1.3250 if the OBR revises borrowing materially higher or if Warsh's tone this evening is more hawkish than priced; a fiscally credible Budget combined with a straightforward Fed hold could see GBP/USD recover toward 1.3350 by Thursday's open. EUR/USD faces its own binary: a hold-and-signal from the FOMC that reinforces December hike expectations keeps the pair under pressure toward 1.1100, while tomorrow's ECB decision and press conference from Lagarde will determine whether the December tightening premium already embedded in EUR rates is sufficient to arrest the euro's October slide.

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.