GBP/USD and GBP/EUR market update

Hot US CPI Cements December Fed Hike, Weighing on GBP/USD and EUR/USD; Tomorrow's UK GDP First Estimate Becomes the Next Pivotal Test, Wednesday, 11 November 2026

GBP/USD: 1.3323 | GBP/EUR: 1.1951 | EUR/USD: 1.1148

Tuesday's US CPI print delivered a third consecutive month of 0.3% core inflation, exceeding the 0.2% consensus and triggering a broad dollar rally that unwound much of Monday's GBP and EUR recovery. Fed Governor Christopher Waller had pre-announced that a half-point hike deserved consideration if core CPI hit 0.3% in October, and that threshold was met exactly. With the FOMC meeting on 9 December and November CPI not due until 10 December, the Fed will vote before seeing the next inflation report, leaving markets to price a near-certain hike. All three pairs now trade meaningfully below last week's highs, and the session focus shifts to tomorrow's UK GDP release and the broader question of whether the BoE's tightening cycle can provide a floor for GBP.

Overnight and Market Tone:

GBP/USD is quoted at 1.3346 and EUR/USD at 1.1166 in early London trade, with both pairs consolidating after Tuesday's sharp post-CPI sell-off from 1.3454 and 1.1251 respectively. GBP/EUR has held relatively firm near 1.1951-1.1954, reflecting a broadly symmetrical dollar bid rather than any sterling-specific weakness. UK stocks are set to gain this morning, the day after hotter-than-expected US inflation figures knocked investor sentiment and wiped out London's earlier rallies on Tuesday. Brent crude is trading near $92.6 and WTI near $86.7, close to their lowest levels since late August, as signals of a potential wind-down to the Iran conflict continue to weigh on energy prices. The VIX closed at 19.92 on Monday before Tuesday's CPI-driven volatility; early indications suggest it has eased slightly toward 19.46 as risk appetite stabilises. The 10-year gilt yield rose to 5.21% on 10 November, up 7 basis points on the session, tracking US Treasuries higher in the wake of the CPI print. Bloomberg data shows the UK 10-year yield at around 5.09% in early Wednesday trade, suggesting a modest overnight pullback as the initial CPI shock is digested.

UK Data and Bank of England:

The dominant domestic event this week arrives tomorrow morning. The ONS will publish both the GDP monthly estimate and the Q3 first quarterly estimate at 07.00am on 12 November. UK GDP data for Q3 2026 will be published on 12 November, and it will be the first read on whether the economy maintained momentum through the summer quarter. For context, GDP grew by 0.5% in Q2 2026 compared with the previous three-month period, following growth of 0.6% in Q1 2026. In Q3 2026, US GDP grew by 0.8% quarter-on-quarter, German GDP grew 0.2%, and French GDP fell 0.1%, providing a mixed international backdrop against which the UK figure will be assessed. Consensus sits around 0.3-0.4% q/q for the UK, with any undershoot likely to revive concerns about stagflation given the BoE's recent tightening.

On inflation, the ONS CPI annual rate stood at 3.5% in September 2026, with the next release scheduled for 18 November. The BoE's November Monetary Policy Report noted that CPI inflation was 3.5% in September and is set to rise further in coming months, mostly because of the direct effects of higher global energy prices on fuel and household utility prices. The labour market remains a secondary support for GBP: the unemployment rate in the three months to August fell to 4.7%, and the employment rate ticked higher rather than via flows into inactivity. Total earnings growth saw a modest fall to 3.7% in the three months to August.

The BoE's next scheduled decision is 17 December. The next Bank of England MPC decision is on Thursday, 17 December 2026, and as of 9 November, OIS pricing implied a 58% chance of a further 25bp hike at that meeting. That probability will be sensitive to tomorrow's GDP print: a weak reading could push it below 50%, while a resilient figure would reinforce the case for a second consecutive hike to 4.25%. The November MPC vote showed broader support for tighter policy than anticipated, with eight members voting for 25bp and Catherine Mann favouring 50bp; notably, Swati Dhingra and Alan Taylor, who had previously favoured holding, both supported the increase, reflecting growing concern that higher energy prices could feed through into more persistent inflation. The MPC said future decisions would depend on evidence including energy-price pass-through, pay, pricing behaviour and economic slack.

European Backdrop and EUR/USD:

The ECB deposit facility rate currently stands at 2.50%. The ECB kept its three key interest rates unchanged at its 29 October meeting. The possibility of a December rate increase remains significant, with three ECB policymakers considering a hike at the 17 December meeting likely, potentially taking the deposit rate to 2.75%, provided energy prices do not fall sharply. For the next ECB meeting on 17 December 2026, market pricing implies an 84% probability of interest rates increasing to 2.75%. Euro-area inflation has accelerated to 3.8%, with German state CPI also pointing higher. Recent energy price surges tied to geopolitical tensions have pushed euro-area headline inflation to 3.8-4.0%, prompting the ECB to hold rates at its late-October meeting while signalling a likely 25bp hike on 17 December; Governing Council communications, including statements from President Lagarde, emphasised upside inflation risks and a clear policy direction absent major shifts in data.

For EUR/USD specifically, the pair has retreated from the 1.1250 option expiry level that provided a gravitational anchor on Monday, and now trades near 1.1148-1.1166. The federal funds target range stands at 3.75%-4.00% compared with an ECB deposit rate of 2.50%, but for EUR/USD, the current rate differential may be less important than how that gap evolves into year-end. The key dynamic is that both central banks are expected to hike in December, but the Fed's move is now priced at near-certainty while the ECB's remains at roughly 82-84%. A Fed 50bp scenario, which markets are beginning to price at around 10%, would widen the rate differential further and could push EUR/USD toward the 1.1000-1.1050 zone. Conversely, any softening in US data or diplomatic progress on the Iran conflict reducing energy price pressures could allow EUR/USD to recover toward 1.1200-1.1250. EUR/USD remains within a broader bearish structure, with a recent low around 1.1103 providing the immediate downside reference. Treasurers with direct EUR/USD exposures should note that the pair is now trading in the lower half of its recent 1.1103-1.1258 range, and that the December ECB decision on 17 December (the same date as the BoE) will be a simultaneous cross-market event.

German GDP growth was 0.2% in Q3 2026, while French GDP fell 0.1%; eurozone GDP as a whole was up by 0.4%. The modest eurozone growth backdrop, combined with persistent energy-driven inflation, creates a stagflationary tension for the ECB that mirrors the BoE's dilemma, and limits the extent to which ECB hawkishness can sustainably support EUR/USD against a dollar buoyed by strong US growth and hot inflation.

US Backdrop:

The US CPI rose 0.4% in October, below the 0.6% in September but exceeding market expectations, with gains broad-based. Core CPI climbed 0.3% for the third consecutive month, a sign that underlying inflationary pressures remain stubbornly persistent. Markets are now pricing in an 88.8% chance of a 25bp Fed hike in December, up from about 72% a week ago, according to CME FedWatch, following the hotter-than-expected CPI data. Markets are no longer pricing in the possibility of a December hold, and are pricing an 11.2% chance the Fed hikes by 50bp next month. The US data calendar is light today, leaving the dollar to consolidate its CPI-driven gains; the next significant US release is the November CPI on 10 December, one day after the FOMC vote.

Technical Picture:

GBP/USD: Resistance at 1.3380, then 1.3430 and 1.3454 (Monday's high). Support at 1.3300, then 1.3270 and 1.3230 (the September consolidation base).
GBP/EUR: Resistance at 1.1975, then 1.2000 (the 52-week high area per BoE data). Support at 1.1920, then 1.1880 and 1.1840.
EUR/USD: Resistance at 1.1200, then 1.1250 (the option expiry level that capped Monday's rally). Support at 1.1103 (recent low), then 1.1050 and 1.1000.
Outlook: The dollar's post-CPI bid has reset the technical picture bearishly for both GBP/USD and EUR/USD in the near term, with both pairs now below their respective 10-day moving averages; a sustained recovery requires either a softening in Fed rhetoric or a materially strong UK GDP print tomorrow to shift the narrative.

Today's Calendar:

With US bond markets closed for Veterans Day, liquidity in USD pairs will be thinner than usual this afternoon, increasing the risk of exaggerated moves on any Fed speaker commentary; treasurers should be cautious about leaving large unhedged USD exposures open into the London close.

Outlook:

The path of least resistance for GBP/USD and EUR/USD remains lower in the near term, with the dollar supported by near-certain December Fed hike pricing and the 50bp risk keeping a premium on the greenback; the key upside scenario for GBP is a materially stronger-than-expected UK Q3 GDP print tomorrow morning, which could push GBP/USD back toward 1.3380-1.3430 and revive BoE December hike expectations above 65%. For EUR/USD, the pair is likely to remain capped below 1.1200 until either the ECB signals a more aggressive tightening path or US data begins to soften, with the 1.1100 level the near-term line in the sand for corporate hedgers managing direct EUR/USD exposures.

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.