GBP/USD + GBP/EUR Market Update

Sterling and the Euro Advance as Iran Diplomacy Lifts Risk Appetite; ADP and ISM Services the Session's Pivotal Tests, Wednesday, 05 August 2026

GBP/USD: 1.3468 | GBP/EUR: 1.1672 | EUR/USD: 1.1539

GBP/USD is inching higher above 1.3450 in European trading on Wednesday, helped by reduced haven appeal for the US dollar as markets cheer a potential US-Iran deal on the Strait of Hormuz reopening. EUR/USD is holding ground near 1.1550 in the early European hours, the pair staying supported amid hopes for a Hormuz agreement, which lifts risk sentiment and keeps the safe-haven dollar on the back foot. Wednesday builds toward Friday's more closely watched July jobs report, with the ADP National Employment Report and the ISM Services PMI standing out as the session's key US releases.

Overnight & Market Tone:

GBP/USD traded firm near 1.3468 to 1.3483 overnight, with resistance flagged near 1.3550 and support near 1.3380, and the pair is expected to take its lead largely from US dollar moves this week. Tuesday's early spike in oil reversed into a slide of more than 5% within hours as Hormuz diplomacy progressed, and any confirmation, or breakdown, of Qatar's draft proposal could move oil and the currencies most tied to it well before Friday's headline number lands. The pound has held above $1.34 as improving risk sentiment supports demand for riskier assets amid signs of easing tensions between the US and Iran, with US Treasury Secretary Scott Bessent saying a deal to reopen the Strait of Hormuz could be reached as early as Tuesday or Wednesday. European equity futures are pointing modestly higher in line with the improved risk tone, while gilt yields have eased from recent highs as oil's retreat reduces the near-term inflation premium baked into the UK rate curve.

UK Data & Bank of England:

There are no first-tier UK data releases today, leaving sterling entirely dependent on the US calendar and geopolitical headlines. With no major UK data and no central-bank meeting this week, sterling takes its lead almost entirely from the US dollar. The domestic backdrop, however, remains nuanced. The Bank of England held Bank Rate at 3.75% on 30 July 2026, on a 6-3 vote, with three members voting to raise it to 4%. Huw Pill, Megan Greene and Catherine Mann voted to increase Bank Rate to 4%, concerned that higher energy prices could lead businesses to raise prices and workers to seek higher wages, making inflation more persistent. Inflation fell to 2.6% in June, but the Bank remains concerned that volatile oil and gas prices could push it higher again. Governor Bailey set the split out plainly: global conditions look more uncertain and inflationary, while the domestic outlook for inflation is, on balance, more benign, which is why three members wanted to move pre-emptively to 4.00% while the majority judged it could wait. The base case for 17 September is another hold at 3.75%, with a hike to 4.00% a live risk rather than the central expectation while services inflation stays sticky. Market pricing implies the Bank of England base rate rises from 3.75% to around 4.2% by the second half of 2027, then stays broadly flat. The 150 basis-point gap between Bank Rate and the ECB deposit rate remains a structural support for GBP/EUR, though the hawkish minority on the MPC means that any upside surprise in UK services inflation data (next release due mid-August) could sharply reprice the September meeting odds.

European Backdrop & EUR/USD:

The ECB raised its deposit facility rate to 2.25% with effect from 17 June 2026, committing to setting monetary policy to ensure inflation stabilises at its 2% target in the medium term, after deciding to raise the three key ECB interest rates by 25 basis points. The war in the Middle East is generating inflation pressures, and 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. ECB policymakers agreed to avoid providing guidance on the future rate path following June's first rate hike since 2023, citing elevated economic uncertainty, stressing that communication should remain neutral, and reaffirming a data-dependent, meeting-by-meeting approach. Markets now see a 70% chance of a September rate hike, as the latest oil price surge following renewed US-Iran strikes has outweighed the relatively dovish tone struck by ECB officials at the early-July Sintra forum, where they had signalled less urgency for additional tightening. At the post-meeting press conference, ECB President Lagarde warned that the longer energy prices remain elevated, "the more likely they are to drive up broader inflation through indirect and second-round effects." For EUR/USD specifically, the pair has recovered meaningfully from its post-FOMC lows of 1.1438 seen on 30 July, closing July with modest gains near the 1.1500 mark, adding over 1.1% in the last trading week, with price action throughout the month dull as investors remained uncertain, though the pair managed to hit 1.1530 ahead of the close. The ECB's own reference rate for EUR/USD stood at 1.1535 as of 3 August 2026. The pair's current advance to the 1.1550 area reflects a narrowing of the Fed-ECB policy differential in the market's perception: the Fed dropped forward guidance ten days ago, so the data is now the guidance, meaning a soft ADP print this afternoon would further erode the dollar's rate-hike premium and push EUR/USD higher, while a strong number would revive the case for a September Fed move and cap the pair. GBP/EUR is expected to hold near one-year highs in a 1.15 to 1.18 range, supported by the 150 basis-point gap between Bank of England and European Central Bank policy rates. Treasurers with direct EUR/USD exposures should note that the pair is now trading at the top of its recent one-month range; a confirmed Hormuz deal combined with a weak ADP could push it toward 1.1600, whereas a breakdown in talks and a hot ISM Prices Paid component would likely drag it back toward 1.1480-1.1500.

US Backdrop:

The federal funds rate range was left at 3.5% to 3.75% at the most recent FOMC meeting in July. Three voting members dissented, showing that some voting members favoured a rate hike; the statement was quite short and gives few clues as to how the Fed may move at future meetings, though price stability remains key, and absent improvements in core inflation, the Fed may be inclined to increase rates later this year. Inflation remains above the Fed's 2% target, and Chair Warsh reiterated his aversion to forward guidance several times in his first press conference, which analysts expect to translate to greater rate volatility. Today, the ADP Employment Change is expected to show private hiring slowing to 70,000 in July from 98,000, ahead of Friday's non-farm payrolls, while the ISM Services PMI is forecast to edge up to 54.5 from 54, with the Prices Paid component last at 67.7. Fed Governor Cook is also scheduled to speak this evening, though she will be speaking into a policy debate the Fed has already aired at length since last week's hold.

Technical Picture:

GBP/USD: Resistance at 1.3483 (overnight high), then 1.3550 (weekly target per IG). Support at 1.3420 (Tuesday's intraday low), then 1.3380 (near-term structural floor).
GBP/EUR: Resistance at 1.1700 (round-number psychological level) and 1.1720 (recent weekly high). Support at 1.1640 (Monday's low), then 1.1600 (mid-range of the 1.15-1.18 weekly band).
EUR/USD: Resistance at 1.1550 (current early-session high), then 1.1600 (round-number target if risk-on extends). Support at 1.1500 (July closing level), then 1.1480 (post-FOMC consolidation base).
Outlook: All three pairs are biased to the upside while Hormuz optimism holds, but the technical picture is fragile given the absence of a confirmed deal; a break above 1.3483 in GBP/USD and 1.1560 in EUR/USD on strong volume would be required to signal a more durable advance rather than a short-covering rally ahead of Friday's payrolls.

Today's Calendar:

The ISM Services Prices Paid sub-index is the single most important number today: a reading above 68 would reinforce the hawkish case made by the three FOMC dissenters and likely reverse the morning's dollar softness, while a miss on the headline ADP alongside a benign Prices Paid print would extend the risk-on move and push GBP/USD toward 1.3520 and EUR/USD toward 1.1580.

Outlook:

Friday's non-farm payrolls remain the dominant USD driver for the week, where a miss of the already-weak consensus would accelerate dollar selling and push GBP/USD higher, while the BoE hawkish pivot versus Fed paralysis is a supportive structural backdrop for sterling. The key risk scenario for today is a breakdown in Hormuz talks combined with a hot ISM Prices Paid print, which would simultaneously revive the dollar's safe-haven and rate-hike premium, pushing GBP/USD back below 1.3420 and EUR/USD toward 1.1480; treasurers with USD payables should consider using any further morning strength to layer in cover ahead of that binary afternoon risk.

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.