GBP/USD and GBP/EUR market update

BoE Decision Day: GBP/USD Extends to 1.3482 on Dollar Weakness and 96% Hike Odds; EUR/USD Holds Above 1.1240 as ECB December Pricing Firms, Thursday, 05 November 2026

GBP/USD: 1.3482 | GBP/EUR: 1.1987 | EUR/USD: 1.1247

The Democratic midterm sweep that drove yesterday's dollar sell-off continues to set the tone this morning, with GBP/USD trading near 1.3485 in the Asian session after an overnight range of 1.3408-1.3484, and EUR/USD holding just above 1.1245. The BoE's noon announcement, published alongside the quarterly Monetary Policy Report, is the clear pivot point for all three pairs today. Brent crude's continued retreat below $95/bbl is providing an additional disinflationary tailwind that the MPC will need to weigh against still-elevated UK CPI.

Overnight & Market Tone:

The FTSE 100 is touching a three-month high in early trading, led by UK bank shares drawing momentum from money market pricing that places an overwhelming probability on Threadneedle Street delivering a 25bp increase in Bank Rate to 4.00%, a move that would mark the central bank's first interest-rate increase in three years. UK markets are set for a cautious, rate-driven open, with the prospect of tighter policy acting as the clear anchor today, outweighing the generally firmer global equity tone. The 10-year gilt yield is trading around 5.17-5.21% this morning, having climbed back above 5.20% on Tuesday before easing toward six-week lows as declining oil prices and BoE decision expectations supported the bond market. Brent crude fell to $94.34/bbl on 5 November, down 0.29% on the day, and has shed 6.2% over the past month, a meaningful deflationary signal for the MPC. The VIX fell to around 16.61-17.75 overnight, reflecting the post-election relief rally on Wall Street and a broadly risk-on backdrop.

UK Data & Bank of England:

The base rate has been held at 3.75% since the September 2026 meeting, with headline CPI standing at 3.1%. The MPC held Bank Rate at 3.75% by 6 votes to 3 at its last meeting, with Megan Greene, Catherine Mann and Huw Pill voting for an immediate rise to 4.00%. Today's decision is published at 12.00pm alongside the full Monetary Policy Report and updated economic projections, making this one of the four forecast-round meetings where the MPC's forward guidance carries maximum weight. As of 4 November, OIS pricing implies a 96% chance of a 25bp hike at today's meeting; over the next 12 months, markets price a net 100.7bp of additional hikes, equivalent to just over four further 25bp steps. Any shift from the previous 6-3 vote split would influence how long markets expect tighter policy to run and feed directly into gilt yields and sterling. The October Autumn Budget, delivered by Chancellor John Healey on 28 October, is also in the MPC's in-tray: the OBR upgraded its UK growth forecast for 2026 from 1.1% to 1.2%, but cut its 2027 forecast sharply from 1.6% to just 1.0%. The OBR estimates fiscal headroom has fallen to £15bn in 2029-30. Fidelity International's eurozone economist Conor Parle expects the MPC to hike at both the November and February meetings, bringing Bank Rate to 4.25%, before holding for a period, implying slightly fewer hikes than markets currently price.

European Backdrop & EUR/USD:

The ECB held its deposit rate at 2.50% at its October meeting, with the Governing Council having considered raising rates at that meeting before opting to hold. The December meeting is now the clear focal point: market pricing implies an 88% probability of a 25bp hike to 2.75% at the 17 December ECB meeting. The ECB's survey of 69 analysts points to a 2.75% deposit rate in December, with inflation near 2% only in late 2027 and subdued economic growth. Caught between inflation running at nearly double its 2% target and concerns that rising yields could hurt growth, policymakers have recently argued for a "measured response". Goldman Sachs Research expects the ECB to hike rates again in December, taking its key short-term policy rate to 2.75% from its current level of 2.5%. On the data front, the Eurozone's October CPI flash estimate showed headline inflation accelerating from 3.8% to 4.0%, in line with forecasts, while core inflation remained steady at 2.5%. The Eurozone's PMI results were also revised lower, with private sector activity slowing more than initially thought last month. For EUR/USD specifically, the euro is taking advantage of the weaker dollar backdrop, with traders eyeing a potential break above key resistance levels around 1.1270-1.1280. The euro continues to benefit from broad dollar weakness, although domestic data remains mixed; stronger economic data and a vigilant ECB are helping support the common currency, with a positive bias intact provided EUR/USD can break and hold above the 1.1280 area. The rate differential dynamic is supportive: with the FOMC on hold in October at 3.75%-4.00% and the ECB at 2.50%, the gap is narrowing on the expectation that both central banks hike in December, limiting the dollar's yield advantage. The dollar is facing downward pressure on Thursday following the Democratic Party's decisive midterm election victory, with the prospect of political gridlock in Washington encouraging investors to move towards riskier assets. EUR/USD at 1.1247 sits comfortably above the 1.1193 level seen as recently as Tuesday, and the pair's ability to hold above 1.1200 through the BoE decision will be a key test of whether the post-election dollar weakness has legs independent of the UK rate story.

US Backdrop:

The FOMC kept interest rates unchanged at 3.75%-4.00% at its 27-28 October meeting, approved by a 10-2 vote following September's 25bp hike. The FOMC upgraded its assessment of US economic activity to "strong" at the October meeting, with Chair Warsh noting that financial conditions had tightened and inflation expectations were moving in the right direction. Futures markets currently assign a 76% chance of a quarter-point hike at the December FOMC meeting. Today's US calendar includes weekly initial jobless claims (13.30pm London), which will be watched for any softening in the labour market that could temper December hike expectations and extend the dollar's post-election slide.

Technical Picture:

GBP/USD: Resistance at 1.3535 (Societe Generale). Support at 1.3390. Options expiries at 1.3365 (GBP 630m) and 1.3450 (GBP 570m) may act as gravitational anchors into the London fix. GBP/USD has cleared the 200-day moving average, a notable technical improvement.
GBP/EUR: Resistance at 1.2010 (round number and recent high). Support at 1.1950, then 1.1900. The pair is range-bound near 1.1987, with the BoE vote split the primary catalyst for a directional break. EUR/GBP options expiries at 0.8330 (EUR 1.5bn) and 0.8365-0.8375 (EUR 3.8bn) suggest the market is positioned for limited movement ahead of noon.
EUR/USD: Resistance at 1.1270-1.1280. Support at 1.1200, then 1.1150. The pair is consolidating in the upper half of its recent range, with a sustained break above 1.1280 needed to open a run toward 1.1320.
Outlook: GBP/USD's technical posture is constructive above the 200-day moving average, but a dovish BoE vote split (7-2 or fewer for a hike) could trigger a sharp reversal toward 1.3390-1.3410; EUR/USD's near-term bias remains modestly higher provided dollar weakness persists and the 1.1200 floor holds.

Today's Calendar:

The 12.00pm BoE announcement is the session's dominant event; the vote split and the MPR's inflation and growth projections will determine whether GBP/USD extends above 1.3500 or retraces toward 1.3400.

Outlook:

A hawkish BoE outcome (hike delivered with a wider majority and upward inflation revisions in the MPR) would reinforce GBP/USD's bid above 1.3480 and could push GBP/EUR through 1.2010, while EUR/USD should remain supported above 1.1200 as long as dollar weakness persists and December ECB hike pricing holds near 88%. The key downside risk for sterling is a "dovish hike" scenario, where the rate rises but the vote split narrows to 5-4 or the MPR signals a high bar for further tightening, which would likely see GBP/USD retrace sharply toward 1.3390-1.3410 and GBP/EUR slip back below 1.1950.

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.