GBP/USD + GBP/EUR Market Update

Warsh's Hawkish Hold Sends GBP/USD Down 1% to 1.3297; BoE Decision at Noon the Next Test as Vote Split Widens, Thursday, 18 June 2026

GBP/USD: 1.3297 | GBP/EUR: 1.1550 | EUR/USD: 1.1513

GBP/USD has fallen sharply from Wednesday's pre-FOMC level near 1.3420 to around 1.3297 this morning, Wednesday's 1% plunge being the worst single-day performance in nine months, driven by the Fed's hawkish hold. EUR/USD has also retreated, with the pair trading near 1.1513, while GBP/EUR sits at 1.1550, broadly unchanged on the cross as both currencies absorbed the dollar's broad advance. The BoE noon announcement and Bailey's press conference are now the defining events for sterling today.

Overnight & Market Tone:

The FOMC voted unanimously to keep the federal funds rate at 3.50%-3.75%, but the updated economic projections delivered a hawkish surprise: 9 out of 19 officials now anticipate at least one interest rate increase before the end of 2026. The S&P 500 fell 1.2%, the Nasdaq 100 dropped 1%, Treasury yields rose, and the US dollar strengthened as investors repriced the probability of a Fed rate hike before year-end. Risk sentiment remains fragile heading into the London open, with FTSE 100 futures pointing modestly lower in sympathy. UK 10-year gilt yields have dipped toward 4.75%, their lowest since mid-April, as traders scaled back BoE hike expectations following the softer-than-expected May CPI print and continued oil price declines. The Iran peace framework, with a formal signing expected in Switzerland, is providing a partial offset to the hawkish Fed impulse by keeping energy prices on a downward path.

UK Data & Bank of England:

UK CPI held steady at 2.8% in May, below expectations of a rise to 3%. Core inflation increased to 2.6%, slightly under forecasts of 2.7%, while services inflation accelerated to 3.7% from 3.2%, broadly in line with expectations. The data suggested that underlying price pressures were less pronounced than feared, reinforcing the cautious, wait-and-see approach favoured by some MPC members. Markets now anticipate just 25 basis points of rate increases for 2026, equivalent to a single hike by December.

Today's noon BoE announcement is the immediate focus. The MPC announces its June decision at 12.00 noon GMT. The committee is expected to hold Bank Rate at 3.75%, its current level since the final cut of the easing cycle in late 2025, though the June decision is far from straightforward: the April vote shifted to 8-1 with a lone hawkish dissent, and the Bank's own projections show CPI rising further into Q3 and Q4 2026. Division remains within the MPC: Chief Economist Huw Pill and external member Megan Greene have signalled they will vote for an immediate rate rise, while Catherine Mann has suggested she is open to a rise at some point if the energy crisis worsens. ING notes that the main question is how many members dissent and vote for a hike. Governor Bailey holds a press conference at 12.30 GMT. The tone of the MPC statement and the vote split are likely to matter more than the rate decision itself: a hawkish hold with multiple dissents could push GBP higher, while a neutral hold could see sterling drift lower. The Makerfield by-election, also taking place today, adds a secondary political dimension: a win for Andy Burnham could influence expectations around Labour leadership and future fiscal strategy.

European Backdrop & EUR/USD:

At its 11 June meeting, the ECB raised its three key interest rates by 25 basis points, with the deposit facility rate now at 2.25%, effective from 17 June. The Governing Council stated that the war in the Middle East is generating inflation pressures, and that the decision to raise rates is robust across a range of scenarios. In the baseline of the new Eurosystem staff projections, headline inflation is expected to average 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028; core inflation is projected at 2.5% in both 2026 and 2027. Economic growth is forecast at 0.8% in 2026, a downward revision reflecting a more pronounced impact of the war on commodity markets, real incomes and confidence.

For the July meeting, market pricing implies an 83% probability of rates remaining on hold at 2.25%, suggesting the ECB hike cycle is seen as largely complete for now, barring a fresh energy shock. Markets currently expect at least one more rate hike this year, though uncertainty lingers after data revealed the eurozone economy contracted in Q1 2026.

EUR/USD has fallen from Wednesday's pre-FOMC level near 1.1608 to 1.1513 this morning, a move driven almost entirely by the broad dollar rally following Warsh's debut. The Federal Reserve delivered a hawkish hold and signalled a major policy regime shift; while rates remained unchanged, Chair Warsh abolished traditional forward guidance, reinforcing a data-dependent approach and increasing the likelihood of higher market volatility. The ECB-Fed rate differential has shifted materially: the ECB deposit rate at 2.25% sits 125-150 basis points below the Fed's 3.50%-3.75% target range, a gap that has widened since the ECB's single hike compared with the Fed's higher-for-longer posture. The updated SEP indicates the median forecast is for the Fed Funds Rate to finish 2026 at 3.8%; the US economy is expected to expand 2.2% by year-end, while Core PCE is projected at 3.3%, well above the Fed's 2% target. This combination of a more hawkish Fed and a cautious ECB pause at 2.25% argues for continued EUR/USD pressure in the near term. Treasurers with direct EUR/USD exposures should note that the pair has now retraced roughly half of its May-to-June rally from the 1.13 area, and the next directional catalyst will be whether the ECB signals any appetite for a follow-through hike at the 23 July meeting.

US Backdrop:

In his debut press conference, Chair Warsh triggered what analysts are calling a Fed "regime change" by killing forward guidance, delivering a drastically shortened committee statement and explicitly abolishing traditional forward guidance, stating that financial markets operate best when reacting directly to real economic data rather than central bank hints. The median forecast now shows the federal funds rate ending 2026 at 3.8%, up from 3.4% in the Fed's March projections and a quarter percentage point above the current range. CME FedWatch showed traders pricing in a 60.7% chance of a rate hike in October following Warsh's comments. US initial jobless claims are due this afternoon (London time) and will be scrutinised as the first significant data point in the post-FOMC, data-dependent regime Warsh has now formally inaugurated.

Technical Picture:

GBP/USD: Resistance at 1.3325 (near-term), then 1.3360 and 1.3385. Support at 1.3280 and 1.3262 (key short-term pivotal zone per ActionForex). Support around 1.3300 is under pressure, and the risk of further downside remains elevated.
GBP/EUR: Resistance at 1.1600 (major ceiling, unlikely to be cleared near-term), then 1.1620. Support at 1.1510 and 1.1480, with the 1.1450 area representing the lower bound of the year's established range.
EUR/USD: Resistance at 1.1560 (former support, now capping), then 1.1600. Support at 1.1480 and 1.1435 (the year's lower range boundary per Cambridge Currencies). The euro's 2026 range against the dollar has already run from 1.1435 to 1.2019, a 5% spread.
Outlook: GBP/USD is testing the medium-term ascending trendline from the November 2025 low; a hold above 1.3262 would be constructive ahead of the BoE, but a wider-than-expected hold vote or a neutral Bailey tone risks extending the decline toward 1.3200. EUR/USD's near-term bias is lower while the post-FOMC dollar bid persists, with 1.1480 the key level to watch.

Today's Calendar:

The BoE noon announcement is the dominant event: a hold is near-certain, but a vote split of 7-2 or wider in favour of a hike would be a material hawkish surprise for GBP, while a repeat of the April 8-1 or a shift toward a more neutral tone from Bailey would likely extend sterling's post-FOMC weakness.

Outlook:

GBP/USD faces a two-sided risk into the BoE: a wider hawkish dissent (two or more votes for a hike) could provide a partial recovery toward 1.3360, but a neutral or dovish-leaning hold would leave the pair vulnerable to a test of 1.3262 and below, given the dollar's post-FOMC momentum. EUR/USD is likely to remain under pressure near 1.1480-1.1513 as the market digests the Fed's higher-for-longer pivot; the key medium-term question for treasurers is whether the ECB signals any appetite for a second hike at the 23 July meeting, which would be the most significant upside catalyst for the euro against both sterling and the dollar.

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. Vantry Capital Ltd is authorised and regulated by the Financial Conduct Authority.