GBP/USD + GBP/EUR Market Update

FOMC Decision Day Dominates as Renewed Iran Missile Strike Lifts Oil and the Dollar; BoE on Deck Tomorrow, Wednesday, 29 July 2026

GBP/USD: 1.3302 | GBP/EUR: 1.1670 | EUR/USD: 1.1398

All three pairs are trading in narrow pre-FOMC ranges as the overnight session was dominated by two competing forces: a renewed geopolitical shock from the Middle East and the gravitational pull of event-risk caution ahead of the Fed. Iran's Islamic Revolutionary Guard Corps launched a surprise attack targeting US forces in the Middle East with multiple ballistic missiles late Tuesday, reversing the brief ceasefire optimism that had lifted risk appetite on Monday. Brent surged more than 4% toward $88 per barrel on Wednesday, snapping a three-day losing streak as renewed hostilities reignited geopolitical tensions and fuelled fresh concerns over energy supply disruptions. The BoE Monetary Policy Report follows tomorrow at noon, keeping both GBP pairs on a short leash.

Overnight & Market Tone:

GBP/USD is quoted around 1.3295-1.3302, with today's early range running from 1.3281 to 1.3298. The DXY is consolidating below 101.50 during the Asian session ahead of the FOMC decision, retaining a bullish undertone near a one-month high, with persistent geopolitical uncertainties acting as a tailwind for the safe-haven dollar. EUR/USD climbed back above $1.14 on Monday as easing Middle East tensions boosted risk appetite, but that move has partially reversed overnight on the fresh missile strike, leaving the pair near 1.1398. Asian stocks sank on Wednesday, extending recent losses, as Reuters noted the dollar held near a one-month high while Asian currencies traded in narrow ranges ahead of the FOMC. The 10-year gilt yield sits near 4.95%, having fallen toward that level as declining oil prices earlier in the week helped ease short-term inflation concerns, though the overnight Brent rebound will test that move at the open. FTSE 100 futures point to a cautious open given the energy-sector crosscurrents and pre-FOMC paralysis.

UK Data & Bank of England:

The most recent UK inflation data provides the MPC with a broadly supportive backdrop for a hold tomorrow. CPI rose by 2.6% in the 12 months to June 2026, down from 2.8% in May, reaching a 15-month low per Trading Economics. Services CPI eased to 3.6% in June, down from 3.7% in May, and down from 4.4% at the start of the year. That services print is the number the MPC watches most closely: it remains above the BoE's comfort zone but its direction of travel gives the majority cover to hold. At its June meeting, the MPC voted 7-2 to maintain Bank Rate at 3.75%, with two members voting to increase Bank Rate by 25 basis points to 4.00%. Those two dissenters were chief economist Huw Pill and external member Megan Greene; Pill told the Walescast podcast on 9 July that he believes interest rates will need to increase this year to keep inflation down. Investors widely expect the BoE to leave rates unchanged at 3.75% tomorrow, with recent inflation data reinforcing that view. The critical market variable is whether the vote split widens beyond 7-2: a third hawk would be a material sterling positive, while any signal of a dovish pivot would weigh. The recent rebound in oil prices due to renewed Middle East hostilities had prompted traders to bring forward hike expectations, with markets as of 22 July pricing in two rate hikes by March 2027. The overnight Brent spike will keep that pricing elevated into tomorrow's decision. The BoE decision is announced at noon on 30 July, alongside a new Monetary Policy Report and the meeting minutes.

European Backdrop & EUR/USD:

The ECB pressed pause on 23 July, keeping all three key interest rates unchanged after its surprise hike just one month earlier, with President Lagarde making clear the central bank is watching the data rather than making promises about what comes next. The deposit facility rate stands at 2.25%, the main refinancing operations rate at 2.40%, and the marginal lending facility at 2.65%, levels set when the ECB hiked by 25 basis points in June for the first time since 2023. Eurozone inflation has decreased to 2.8% but remains above the ECB's 2% target, while GDP growth is projected at a mere 0.8%. The bloc's economy contracted by 0.2% in the first quarter of 2026, compared with estimated 0.1% growth. That stagflationary mix constrains the ECB's room to hike aggressively, even as energy prices rebound. ECB President Lagarde emphasised that the July hold should not be interpreted as the end of monetary tightening, delivering a firm message that it represents a tactical pause. Money markets still price in nearly two 25-basis-point ECB rate hikes by February 2027, though the pace of that pricing will be sensitive to tonight's Warsh press conference and tomorrow's Brent trajectory.

For EUR/USD specifically, the pair has been caught between two hawkish central banks with diverging growth outlooks. The euro held near 1.1400 against the dollar after correcting from the monthly high of 1.1482 hit on 15 July, and the overnight Iran escalation has nudged it back toward the lower end of its recent range. The Fed-ECB rate differential is narrow (Fed funds upper bound 3.75% versus ECB deposit rate 2.25%), which in isolation supports EUR/USD, but the dollar's safe-haven premium in the current geopolitical environment is acting as a persistent headwind. The Fed's June dot plot showed a median year-end 2026 rate of 3.8%, up sharply from 3.4% in March, implying the potential for one hike before year-end. If Warsh's tone tonight reinforces that asymmetric hike bias, EUR/USD could test the 1.1340-1.1350 zone. A neutral-to-dovish Warsh, by contrast, could see the pair recover toward 1.1440. Treasurers with direct EUR/USD exposures should note the pair is currently mid-range within its four-week 1.1340-1.1482 corridor and that tonight's press conference is the single most likely catalyst for a directional break.

US Backdrop:

The Federal Reserve is widely expected to leave policy rates unchanged at the July 28-29 FOMC meeting. Economists polled by FactSet predict the Fed will hold at 3.50%-3.75%, which would mark the fifth consecutive meeting with rates unchanged. The decision is announced at 2.00pm US Eastern Time (19.00 BST), followed by a Warsh press conference at 2.30pm ET; the meeting carries no fresh economic projections, so the dot plot is not updated. It is unlikely markets will gain explicit insights into Warsh's economic views, given that he has vowed to share less forward guidance, making the tone and any dissent count the key variables to watch. The overnight Iranian missile strike has triggered a sharp rally in crude oil prices, reviving inflation fears and raising the prospect of a Fed rate hike, which may further hold back traders from placing aggressive bearish bets on the dollar.

Technical Picture:

GBP/USD: Resistance at 1.3330, then 1.3365 (top of the recent weekly range per TIO Markets). Support at 1.3281 (today's early low), then 1.3275 and 1.3200-1.3150 on a decisive break lower.
GBP/EUR: Resistance at 1.1700 (Monday's session high) and 1.1720. Support at 1.1640, then 1.1600. The pair has drifted from its early-July best levels near 1.1740 as EUR has found some footing on ECB hawkishness.
EUR/USD: Resistance at 1.1440 (post-ECB consolidation high), then 1.1482 (15 July monthly high). Support at 1.1360, then 1.1340 (lower bound of the four-week range).
Outlook: All three pairs are compressed into pre-event ranges; the FOMC outcome at 19.00 BST is the most likely catalyst for a directional break, with a hawkish Warsh tone favouring dollar strength (GBP/USD lower, EUR/USD lower, GBP/EUR broadly stable) and a neutral outcome likely to see a modest reversal of recent dollar gains.

Today's Calendar:

The FOMC decision and Warsh press conference at 19.00-19.30 BST are the sole events that matter today; the Q2 GDP advance print at 13.30 BST could move the dollar in the hour before the decision window, particularly if it surprises materially relative to the 2.0% consensus.

Outlook:

With the FOMC tonight and the BoE Monetary Policy Report tomorrow at noon, the next 24 hours represent the highest-volatility window of the quarter for all three pairs; the base case is a dollar hold followed by a cautious Warsh press conference that leaves GBP/USD and EUR/USD broadly range-bound, but the renewed Iranian missile strike introduces an asymmetric upside risk for the dollar that could see GBP/USD test 1.3275 and EUR/USD probe 1.1340 if Warsh's language is read as hawkish. Treasurers with USD payables should consider that the BoE vote split tomorrow morning could partially offset any post-FOMC dollar strength if the MPC delivers a hawkish surprise, making the 24-hour window particularly two-sided for GBP/USD.

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.