GBP/USD + GBP/EUR Market Update

Post-BoE Sterling Holds Above 1.3450 as Hawkish 6-3 Vote Collides With Month-End Dollar Bid and Eurozone Flash CPI; Friday, 31 July 2026

GBP/USD: 1.3452 | GBP/EUR: 1.1682 | EUR/USD: 1.1515

Sterling enters Friday's session holding the bulk of Thursday's post-BoE gains, trading above 1.3450 after advancing roughly 130 pips from the European morning low short of 1.3350. The move was driven by a more hawkish-than-expected MPC vote split, but Bailey's immediate verbal intervention tempered the rally. EUR/USD trades in negative territory around 1.1500 in early European hours, with the euro softening as escalating Middle East tensions weigh on riskier assets. The key scheduled event today is the Eurozone flash CPI print at 09.00am, alongside the US University of Michigan consumer sentiment survey in the afternoon.

Overnight & Market Tone:

Extreme volatility hit markets on Thursday as the Bank of Japan intervened and a mix of US data releases landed, with Q2 GDP coming in below expectations and PCE inflation cooling in June; USD/JPY plunged to 157.95, dragging the Dollar Index down to 99.85. Both have since recovered from those lows, and EUR/USD trades below immediate resistance at 1.1525. The dollar is rebounding on fresh US-Iran tensions and month-end profit-taking. FTSE 100 futures point modestly higher, consistent with the broader recovery in risk appetite following Thursday's BoJ-driven volatility, though Brent crude remains a source of uncertainty. The UK 10-year gilt yield stands near 5.03%, while Brent crude futures trade around $87.58, down sharply on the session. The gilt yield level reflects the accumulated hawkish repricing since the Iran conflict began, and any further softening in Brent today would ease the inflation premium embedded in the curve.

UK Data & Bank of England:

At its meeting ending on 29 July, the MPC voted 6-3 to maintain Bank Rate at 3.75%, with three members voting to increase Bank Rate by 0.25 percentage points to 4.00%. The three dissenters were Megan Greene, Catherine Mann, and Huw Pill, each preferring a 0.25-point rise. This widened the dissent bloc by one from June's 7-2 split, and markets had priced a 7-2 outcome, making the result a hawkish surprise on the vote count. However, Governor Bailey moved swiftly to contain the reaction. Bailey stated at the press conference: "Please do not leave this room thinking that the Bank of England is edging towards a hike, because frankly, there's nothing in what I said... along those lines. We took a decision today to leave bank rate unchanged, and that is the relevant conclusion." The MPC's own July Monetary Policy Report projects a more challenging inflation path: the Bank's central projection showed CPI inflation peaking at around 3.2% in Q4 2026, with risks to the inflation outlook tilted to the upside. CPI has fallen to 2.6% since the previous meeting, though it is expected to rise later this year as higher energy prices pass through; the risk of material second-round effects is greater the longer higher energy prices persist. With the July energy price cap increase now in effect, the MPC's caution is well-founded. The next MPC meeting is 17 September 2026. OIS markets, which had been pricing a hike by November with high confidence ahead of yesterday's decision, will now reprice around the September meeting in light of both the hawkish vote count and Bailey's dovish framing; the September meeting carries the next meaningful live risk for GBP.

European Backdrop & EUR/USD:

The euro enters Friday's session carrying two significant tailwinds from Thursday's data, but facing a near-term headwind from geopolitics and month-end flows. In Q2 2026, seasonally adjusted GDP increased by 0.4% in the Eurozone, well above the 0.2% consensus, with year-on-year growth of 1.0%. This is much better than expected and will keep the ECB's tightening bias intact, with particular focus on inflation to limit potential second-round effects. Separately, German preliminary Q2 GDP rose 0.2% quarter-on-quarter, beating the 0.1% estimate, though growth remains slower than Q1's 0.3%; on an annualised basis, German GDP arrived at 0.9%, above the 0.6% estimate. Germany's preliminary July CPI is expected at +2.8% year-on-year, with the ex-food-and-energy rate at +2.4% and energy prices up 8.3% on the year. On the ECB policy path, the ECB left its deposit rate at 2.25% on 23 July, after a 25 basis point increase in June, and said it is still watching whether higher energy costs feed into broader prices. For the next ECB meeting on 10 September 2026, market pricing implies an 88% probability of rates increasing to 2.50%. Nordea goes further, forecasting three additional 25-basis-point increases that would lift the ECB deposit rate from 2.25% to 3.00% by March 2027. The critical event for EUR/USD today is the Eurozone flash CPI for July at 09.00am. Friday brings the flash Eurozone CPI estimate for July from Eurostat, which will confirm whether the inflation deceleration seen in June continued or reversed in light of the July oil price bounce. The euro area annual inflation rate was 2.8% in June 2026, down from 3.2% in May. A print that re-accelerates toward or above 3% would reinforce the ECB's September hike case and support EUR/USD; a further softening would raise questions about whether the ECB's tightening cycle has more room to run. For EUR/USD specifically, the pair has recovered materially from the sub-1.14 levels seen earlier this month. EUR/USD is tracking US Treasury yields closely; the 10-year approached 4.70% when crude was above $100 and has since eased to around 4.63%, and that retreat explains much of the euro's bounce. The ECB-Fed policy differential is now a genuine EUR/USD support factor: the ECB is actively tightening while the Fed holds with a divided committee. Futures put a September Fed hike at 63%, lift that to 90% by the late October meeting, and price one increase in full by December. If the Eurozone CPI print today is firm and reinforces the ECB's September hike to 2.50%, the ECB-Fed rate differential narrows further and provides a structural floor for EUR/USD. Conversely, EUR/USD trades in negative territory around 1.1500 in early European hours, with the euro softening as escalating Middle East tensions weigh on riskier assets - a reminder that geopolitical risk-off episodes tend to favour the dollar regardless of rate differentials. Treasurers with direct EUR/USD exposures should note that the pair has moved from 1.1366 on 28 July to 1.1515 today, a 150-pip appreciation in the euro, and that today's CPI print is the next binary risk for the pair's near-term direction.

US Backdrop:

The US economy slowed to a 1.5% annualised growth rate in Q2, with June core PCE inflation at 3.3%. Inflation has taken the primary focus for Fed policymakers as labour market indicators have stabilised, with three dissenting votes from regional presidents concerned about the failure to make progress on prices; the GDP miss appeared to come from a decline in federal government spending and inventories. Fed Chair Kevin Warsh did not signal an imminent decision to tighten, which caused a September rate increase to be taken off the table, decreasing Treasury yields and strengthening the pound along with other major currencies. Today's US calendar features the University of Michigan consumer sentiment index (final July reading) and any further Fed speaker commentary; with no major data shock expected, month-end dollar demand and geopolitical headlines are the more likely USD drivers into the close.

Technical Picture:

GBP/USD: Resistance at 1.3500 (session high from Thursday per FXStreet), then 1.3550 (July range top). Support at 1.3400 (50-day and 200-day EMA convergence zone), then 1.3350 (Thursday's European morning low).
GBP/EUR: Resistance at 1.1700 (round number), then 1.1720. Support at 1.1650, then 1.1620 (mid-July consolidation base).
EUR/USD: EUR/USD trades below immediate resistance at 1.1525. Resistance at 1.1525, then 1.1550. Support at 1.1480, then 1.1430 (Thursday's intraday low per Dukascopy).
Outlook: GBP/USD is trying to find its footing after being stuck in a broad range between support around 1.3180-1.3200 and key peak resistance near 1.3550. The hawkish BoE vote count supports a test of 1.3500 in GBP/USD, but Bailey's verbal intervention and month-end dollar demand argue for consolidation rather than a clean break; EUR/USD's direction today hinges almost entirely on the 09.00am CPI print.

Today's Calendar:

The Eurozone flash CPI at 09.00am is today's pivotal release: a re-acceleration above 2.8% would cement ECB September hike pricing at 88% and provide EUR/USD with a fresh bid, directly affecting the cost of EUR payables for UK corporates.

Outlook:

The dominant near-term narrative for GBP/USD is that sterling has reclaimed the 1.34-1.35 range on the back of a more hawkish BoE vote, but Bailey's explicit pushback means the pair is now a dollar instrument until September's MPC meeting, with US data and geopolitical risk the primary drivers; GBP/USD is a dollar instrument until the Bank of England meets again in September, and that is the honest read of a session in which sterling's own central bank surprised on the hawkish side. For EUR/USD, a firm July CPI print today would reinforce the ECB-Fed differential trade and support a test of 1.1525-1.1550, while any further escalation in the Middle East or a soft CPI miss would push the pair back toward 1.1430-1.1480; treasurers with USD payables should consider using any dollar weakness on a soft CPI print as a hedging opportunity, given the still-elevated probability of a Fed hike by year-end.

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.