GBP/USD + GBP/EUR Market Update

Post-Budget Relief Meets ECB Hold and US Data Day; GBP Steadies as BoE Hike Bets Firm, Thursday, 29 October 2026

GBP/USD: 1.3313 | GBP/EUR: 1.1948 | EUR/USD: 1.1142

Chancellor Healey's Budget landed broadly in line with market expectations on Wednesday, prompting only a muted reaction in gilts and sterling, with the 10-year gilt yield settling around 5.34% and GBP/USD holding near 1.3291 through the afternoon. The FOMC voted to hold the federal funds rate at 3.75%-4.00% on 28 October, adopting a wait-and-see stance while leaving the door open for potential tightening at its December meeting. Attention now pivots to the ECB's rate announcement and a heavy US data slate, both of which land within the same London afternoon window.

Overnight and Market Tone:

GBP/USD fell to 1.3319 on 29 October, down 0.06% from the previous session. The pair has recovered modestly to the 1.3313 area cited in our database, consolidating in a narrow range as Asia-Pacific participants digested the FOMC outcome. GBP/EUR was trading around 1.1937-1.1945, down from an overnight high of 1.1957, after the pound initially fell on Budget-day caution before recovering. EUR/USD edged up on the Fed hold but remains below its recent high just above 1.1150, with the Fed's rate still 1.25-1.50 percentage points above the ECB's 2.50% deposit rate. Brent crude fell to around $114.28 per barrel on 29 October, down 0.90% from the previous day, easing after reports of a US diplomatic letter to Iran, which has taken some of the geopolitical premium off the oil price. Risk sentiment is cautious but not distressed ahead of the ECB and US data.

UK Data and Bank of England:

Chancellor Healey's first Budget prompted only a limited reaction in gilts, equities and sterling, as investment professionals said the statement had met markets' demand for fiscal restraint. Ten-year gilt yields fell 2.1 basis points to 5.321% on Wednesday according to Tradeweb, and this morning the 10-year is quoted around 5.34%, broadly stable. Fiscal headroom narrowed to approximately GBP 14.5 billion at the third-year assessment, from GBP 23.6 billion in March, and the OBR cut its 2027 GDP growth view by 50 basis points to 1.0%. Gilt yields were largely unchanged after the Budget, despite the OBR warning that higher inflation would mean government borrowing costs would be GBP 14 billion a year higher this parliament. The Budget's fiscal credibility verdict is supportive for sterling at the margin, removing a key tail risk. On the monetary policy front, OIS pricing as of 28 October implies a 97% chance of a 25bp BoE hike at the 5 November MPC meeting, with markets pricing approximately 113 basis points of total tightening across the next nine meetings. The next MPC decision is due on Thursday 5 November 2026 at 12.00pm, published alongside the quarterly Monetary Policy Report and updated economic projections. The near-certainty of a November hike to 4.00% remains the principal underpinning for sterling at current levels.

European Backdrop and EUR/USD:

The ECB's October meeting is the session's dominant event for EUR crosses. A hold at 2.50% is widely expected for 29 October, and in a Reuters poll, 70 of 73 economists expected the deposit rate to stay at 2.50% this month, with market pricing on 26 October implying only around a 3% chance of an October move. The deposit facility rate has stood at 2.50% after a 25bp rise on 10 September, and Eurostat's flash estimate put September euro area inflation at 3.8%. Eurostat confirmed the annual euro area inflation rate for September 2026 at 3.8%, after 3.2% in August, the highest reading since September 2023 and well above the 2% target. Energy prices grew 18.9% more expensive year-on-year and accounted for the bulk of the jump. The real question for EUR/USD is not the rate decision itself but the tone of President Lagarde's press conference, which follows at 1.45pm London time. A hold is widely expected, so the bigger question for the euro is how clearly the ECB signals a further rise in December, with energy-driven inflation at a three-year high and the Fed and the Bank of England both leaning toward tighter policy. A December hike is approximately 84% priced in after September inflation hit 3.8%. Adding complexity, the ECB's decision is likely to be overshadowed by questions about bond-market turmoil in France and ECB President Christine Lagarde's own future. French sovereign spread widening has been a persistent headwind for EUR/USD, limiting the pair's ability to sustain gains above 1.1150 even as the Fed holds. October is not one of the ECB's four quarterly projection meetings, meaning no new staff inflation or GDP forecasts will be released on 29 October. That makes Lagarde's verbal guidance on December the sole forward-looking signal. For EUR/USD specifically, the pair sits at 1.1142, in the lower half of its recent 1.1100-1.1200 range. After the Fed's hold, Thursday's ECB decision is the week's last chance to change EUR/USD's rate gap; the pair rose on the FOMC statement and won back part of a slide from the session high just above 1.1150. A hawkish Lagarde (signalling December firmly) could push EUR/USD back toward 1.1180-1.1200; a cautious or growth-focussed tone risks a dip toward 1.1080-1.1100. Treasurers with direct USD/EUR exposures should be positioned before 1.15pm.

US Backdrop:

The FOMC voted 10-2 to leave the federal funds rate on hold within the target range of 3.75%-4%, with markets currently pricing in one more 25bp hike in 2026 followed by further increases into 2027. Governor Lisa Cook and Cleveland Fed President Beth Hammack both wanted a 25bp hike, and the statement upgraded the growth assessment to "strong" while adding a new line about needing more information, with markets pricing approximately 85% for a 25bp December hike. Fed Chair Kevin Warsh said the central bank remains focused on returning inflation to the 2% target. Today's US calendar is heavy: US Q3 GDP and September PCE inflation data are due at 8.30am ET (12.30pm London), with markets expecting annualised GDP growth of 3.2% and core PCE rising 0.3% monthly and 3.1% annually. With the Fed holding at 3.75%-4.00% and two officials favouring hikes, a hot print could shape expectations for December's rate decision and provide a fresh bid for the dollar across all pairs.

Technical Picture:

GBP/USD: Resistance at 1.3350, then 1.3400 (recent month high). Support at 1.3280, then 1.3240.
GBP/EUR: Resistance at 1.1957 (Wednesday overnight high, 17-month high area). Support at 1.1900, then 1.1860.
EUR/USD: Resistance at 1.1155 (recent session high), then 1.1200. Support at 1.1100, then 1.1080.
Outlook: GBP/USD and EUR/USD are both range-bound ahead of the ECB and US data; a hot PCE print combined with a cautious Lagarde would be the most USD-positive scenario, potentially pushing GBP/USD toward 1.3240 and EUR/USD toward 1.1080, while a hawkish ECB press conference would be the primary upside catalyst for EUR/USD and could lift GBP/EUR back toward 1.1900 from the current 1.1948 level.

Today's Calendar:

The 12.30pm US data double-header and the 1.15pm ECB decision land within 45 minutes of each other, creating the highest intraday volatility window of the week for all three pairs simultaneously.

Outlook:

With the Budget risk cleared and the FOMC hold absorbed, GBP/USD is likely to trade in a 1.3270-1.3370 range through the London session, with direction determined by the relative hawkishness of the ECB press conference against the US data outcome; a firm November BoE hike at 97% OIS probability continues to provide a floor for sterling, but the OBR's downgraded 2027 growth forecast to 1.0% and the thin GBP 14.5bn fiscal headroom cap any sustained rally. Treasurers with EUR payables should consider acting ahead of the 1.15pm ECB announcement, as Lagarde's December guidance is the most likely catalyst for a 30-50 pip move in EUR/USD and GBP/EUR in either direction before the London close.

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.