GBP/USD and GBP/EUR market update

BoE Hike Digested, AI Rout Dominates: GBP/USD Slips to 1.3396 as Risk-Off Bids the Dollar; EUR/USD Retreats Toward 1.1181 Ahead of NFP, Friday, 06 November 2026

GBP/USD: 1.3396 | GBP/EUR: 1.1981 | EUR/USD: 1.1181

The BoE delivered its first rate hike since August 2023 on Thursday, raising Bank Rate by 25bp to 4.00% in an 8-1 vote, but sterling's reaction was muted as a historic AI and chip-stock selloff simultaneously gripped global markets. Technology equities tumbled, the Nasdaq dropped nearly 6% and dragged the S&P 500 to its worst session since April 2025, while the euro fluctuated around $1.12 and GBP weakened even as the BoE hiked. The focus today shifts squarely to the 13.30 US payrolls print, which will determine whether the dollar's partial recovery extends or reverses.

Overnight & Market Tone:

Implied volatility surged and the VIX curve inverted in the sharpest jump since April 2025, with the AI-led selloff extending into Asia on Friday, bringing steep losses to Seoul and Tokyo. The VIX jumped 69.66% to 28.18, its highest since 31 March. The Stoxx Europe 600 was down 1.3% as of 8.21am in London, with basic resources leading declines. The FTSE 100 was indicated around 10,783, down 0.43%. In fixed income, the two-year US Treasury yield declined around 10 basis points to 4.47% overnight as growth concerns prompted safe-haven flows, while the UK 10-year gilt yield was trading in a range of approximately 5.09-5.19% on the day. The US dollar was slow to firm on the risk-off backdrop Thursday but eventually caught a broad bid, with EUR/USD rolling back below 1.1190 after testing range highs near 1.1270 early Thursday. Brent crude futures rose 1.4% to just under $100 a barrel in early trading, extending Thursday's gains as fresh tanker attacks in the Gulf reasserted the geopolitical risk premium.

UK Data & Bank of England:

At its meeting ending on 4 November 2026, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.25 percentage points, to 4%. One member voted to increase Bank Rate by 0.5 percentage points, to 4.25%: Catherine L Mann, who preferred a larger move on risk-management and credibility grounds. The vote was more hawkish than many had anticipated. The 8-1 split was more hawkish than ING had expected, and arch-doves Alan Taylor and Swati Dhingra both backed the hike, a result many analysts had not foreseen. The BoE's Monetary Policy Report stated that UK CPI inflation, at 3.5% in September, is now expected to rise to around 5% by the middle of next year, with the central projection averaging 4.9% in 2027 Q2. Governor Bailey characterised the decision as a response to current conditions rather than the start of an automatic sequence of increases, but emphasised that if the Middle East conflict remains unresolved, further adjustments may be required. Deutsche Bank believes the MPC will vote to increase rates once more to 4.25% at either the December or February meeting. The next MPC decision is due on 17 December 2026. GBP/USD recovered slightly from session lows with the immediate reaction to the Monetary Policy Report and was last seen trading virtually unchanged on the day at 1.3470 before the AI-driven risk-off move pushed it lower into the close and through the Asian session. The pound erased its earlier gains as solid US data and hawkish comments by Fed officials weighed on the UK currency.

European Backdrop & EUR/USD:

The ECB held its deposit rate at 2.50% at the 29 October Governing Council meeting, as universally expected. Markets saw the decision as a hawkish pause and were pricing in a 67% chance of a December rate hike at that point. Since then, pricing has firmed considerably: for the next ECB meeting on 17 December 2026, market pricing now implies an 89% probability of a 25bp hike to 2.75%. The ECB's survey of 69 analysts points to a 2.75% deposit rate in December, alongside subdued economic growth and inflation near 2% only in late 2027. ECB Governing Council member Joachim Nagel stated on Tuesday that the central bank will probably raise borrowing costs next month in response to a deteriorating inflation outlook. Headline inflation in the euro area hit 3.8% in October, the highest since September 2023, with energy price inflation reaching 18.8% amid continued turbulence in the Middle East. The ECB has also confirmed that President Lagarde will step down in early February 2027, adding a layer of institutional uncertainty to the euro's medium-term outlook.

For EUR/USD specifically, the pair has been caught between two competing forces this week: the post-midterm dollar weakness that briefly lifted it to 1.1270 on Thursday, and the subsequent risk-off dollar recovery that has dragged it back toward 1.1181. EUR/USD retraced a portion of the initial post-midterm rise and traded closer to the 1.12 level as the AI selloff gathered pace. Investors scaled back their expectations for Fed rate hikes, with implied rates for end-2027 dropping to 4.25% from 4.40%, a development that would ordinarily support EUR/USD, but the broad risk-off impulse and a firmer dollar index (around 101.66) are the dominant near-term driver. With the ECB at 2.50% and the Fed at 3.75-4.00%, the rate differential continues to weigh on the euro structurally, though the convergence in hiking cycles (both central banks pricing one more move) limits the scope for a sharp EUR/USD breakdown. EUR/USD option expiries today include strikes at 1.1250 (EUR 625mn) and 1.1150 (EUR 960mn), which may act as gravitational anchors through the New York cut. A clean break below 1.1150 on a strong NFP print would open the way toward 1.1060; a weak payrolls number could see the pair recover toward 1.1250-1.1270.

US Backdrop:

The Fed held its policy rate at 3.75%-4.00% at its October 28 meeting, with two members pushing for a quarter-point hike. As of this morning, CME FedWatch shows a 68.7% probability of a 25bp rate hike at the December 8-9 FOMC meeting, down from above 80% earlier in the week as the AI-driven equity rout prompted a partial repricing of the growth outlook. Market consensus expects US nonfarm payrolls to increase by approximately 65,000 in October, up from 29,000 in September, with the unemployment rate projected to hold steady at 4.2% and month-over-month average hourly earnings growth potentially rebounding from 0.1% to 0.3%. This data is critical for gauging labour market resilience and shaping Fed policy expectations for December; a strong report with accelerated wage growth will likely reinforce rate-hike expectations, supporting the dollar while pressuring EUR/USD and GBP/USD.

Technical Picture:

GBP/USD: Resistance at 1.3450 (options strike, intraday), 1.3480 (Thursday's post-BoE high), 1.3535 (Societe Generale target, 7-week high). Support at 1.3390 (200-day moving average, cited by Societe Generale), 1.3365 (options strike, GBP 630mn), 1.3320.
GBP/EUR: Resistance at 1.2010, 1.2040 (recent range top). Support at 1.1960, 1.1920 (12-month low zone, EUR/GBP 0.8340 equivalent). EUR/GBP option expiries at 0.8330 (EUR 1.5bn) and 0.8365-75 (EUR 3.8bn) suggest the cross remains anchored near current levels into the New York cut.
EUR/USD: Resistance at 1.1190-1.1200 (near-term pivot), 1.1250 (options strike, EUR 625mn), 1.1270 (Thursday's high). Support at 1.1150 (options strike, EUR 960mn), 1.1100, 1.1060.
Outlook: GBP/USD sits at a technically important juncture: a hold above 1.3390 (200dma) keeps the week's bullish structure intact, but a weak NFP print is needed to extend gains, while EUR/USD's fate hinges on whether the 1.1150 option barrier holds on a strong payrolls surprise.

Today's Calendar:

The 13.30 payrolls release is the week's final major event risk: a print materially above 100,000 with firm wages would likely cement a December Fed hike, driving a dollar rally that could push GBP/USD below 1.3390 and EUR/USD toward 1.1150, while a sub-40,000 reading would revive the post-midterm dollar-weakness narrative and could recover both pairs sharply into the weekend.

Outlook:

Into the weekend, the dominant risk is a binary NFP outcome: the BoE's hawkish 8-1 hike provides a structural floor for GBP on any dollar softness, but the AI-driven risk-off environment and a VIX at 28.18 mean that a strong payrolls print could overwhelm that support and push GBP/USD below the 200-day moving average at 1.3390, while EUR/USD would face a test of the 1.1150 option barrier. Treasurers with USD payables due next week should consider whether today's elevated volatility warrants locking in rates ahead of the print, given that the range of plausible outcomes spans roughly 150 pips in GBP/USD and 120 pips in EUR/USD on the day.

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.