GBP/USD and GBP/EUR market update

BoE Hike Eve and US Midterm Uncertainty Lift GBP/USD; EUR Holds Above 1.12 as ECB December Odds Firm, Monday, 02 November 2026

GBP/USD: 1.3441 | GBP/EUR: 1.1977 | EUR/USD: 1.1222

GBP/USD has extended Friday's post-Budget recovery, holding its ground and trading marginally higher on the day, slightly above 1.3400, with our database showing a firmer 1.3441 in early London trade. EUR/USD benefits from modest USD weakness early Monday and has recovered toward 1.1200 in the early European session. The primary drivers this week are Thursday's BoE decision (with its accompanying Monetary Policy Report), tomorrow's US midterm elections, and Friday's US non-farm payrolls; all three pairs face meaningful event risk before the week is out.

Overnight & Market Tone:

UK 10-year gilt yields have extended their decline below 5.3%, hitting their lowest level since 22 September, as weaker oil prices and anticipation of this week's BoE policy decision underpin the bond market. Investors continue to respond positively to Chancellor John Healey's Budget last week, which complied with the government's self-imposed borrowing rules and largely reassured markets. The USD Index ended last week marginally higher, supported by safe-haven flows following a sharp sell-off in technology stocks, though early Monday it stays in negative territory below 102.00, while US stock index futures rise between 0.4% and 0.9% on the day. Brent crude fell to $110.63/bbl on 2 November, down 2.47% from the previous day, though over the past month its price has risen 10.28%. The VIX closed at 17.20 on 29 October, a relatively contained reading given the confluence of event risk this week. FTSE 100 futures are indicated marginally lower, with FTSE 100 futures at 10,746.50, down 0.04%. The US 10-year Treasury yield opened at 4.917% on 2 November.

UK Data & Bank of England:

The S&P Global/CIPS UK Manufacturing PMI for October is due at 09.30am today, with the previous reading at 51.9. The flash services PMI for October, released last week, rose to 53.1 from 52.1 in September, above market forecasts of 51.8, providing further evidence of resilience in the dominant services sector ahead of Thursday's decision. On inflation, CPIH rose by 3.6% in the 12 months to September 2026, up from 3.3% the previous month, while headline CPI stood at 3.1% as of the September release, in line with the forecast and up from 2.9% previously. The next ONS CPI print is not due until 18 November, meaning the MPC will be acting on September data this Thursday.

The BoE decision is the dominant domestic event of the week. The next Bank of England interest rate decision is on Thursday 5 November 2026 at 12.00pm UK time, with a new Monetary Policy Report. The Bank held Bank Rate at 3.75% at its September meeting in a 6-3 vote, with three members voting for a rise to 4%. As of 1 November 2026, OIS pricing implies a 94% probability of a 25bp hike at the 5 November meeting, with the market-implied post-meeting rate at 3.99%. The Bank is widely expected to deliver its first rate increase since 2023 on Thursday, amid mounting inflationary pressures linked to the Iran conflict and ongoing signs of resilience in the UK economy, though policymakers are also expected to push back against market expectations for multiple additional rate hikes next year. For treasurers, the vote split will be as important as the decision itself: a narrow majority (for example, 5-4) would be read as a dovish hike and could cap any sterling rally, whereas a decisive 7-2 or 8-1 majority would reinforce the tightening narrative and support GBP across the board.

European Backdrop & EUR/USD:

The ECB kept its three key interest rates unchanged at its 29 October meeting, leaving the deposit facility rate at 2.50%, though its assessment of the inflation outlook suggests policymakers are not yet ready to rule out further monetary tightening. In its statement, the Governing Council said rising energy prices posed upside risks to the inflation outlook and downside risks to growth, but that underlying inflation and wages were so far broadly stable. The possibility of a December rate increase remains significant; according to Reuters, three ECB policymakers consider 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 82% probability of interest rates increasing to 2.75%. That is a meaningful step up from the 67% probability reported immediately after the October decision, according to LSEG data, suggesting the market has absorbed the ECB's hawkish pause and is now more firmly positioned for a final hike this year. Headline inflation in the euro area hit 3.8% last month, the highest level since September 2023, with energy price inflation reaching 18.8% amid continued turbulence in the Middle East. Data from Germany showed that retail sales declined by 2% on a monthly basis in September following the 1.2% increase recorded in August, a reminder that the growth backdrop in the euro area remains fragile even as inflation stays elevated.

For EUR/USD specifically, the pair has recovered from its recent low near 1.1103 and is now testing the upper end of its recent range. EUR/USD remains within a broader bearish structure, despite a modest recovery from its recent low around 1.1103. The pair is caught between two competing forces: a hawkish ECB path (with an 82% December hike probability providing a floor) and a Fed that, while on hold, retains a tightening bias and has kept the door open to a December move of its own. Stronger-than-expected data including Q3 GDP growth of 3.4% and sticky September core PCE have kept a December Federal Reserve hike firmly in play, with markets pricing over 75% odds after Chair Kevin Warsh's post-meeting comments failed to push back hard against further tightening. The net result is a pair that is likely to remain range-bound between approximately 1.1100 and 1.1300 until the relative December rate paths become clearer. Treasurers with direct EUR/USD payables should note that any dollar softness on midterm uncertainty could push the pair toward the top of that range intraday, while a Republican outcome tomorrow that reinforces the current fiscal trajectory could see the dollar recover and EUR/USD drift back toward 1.1150.

US Backdrop:

The FOMC voted 10-2 to maintain the target range for the federal funds rate at 3.75% to 4.00% at its 27-28 October meeting. Voting against were Lisa D. Cook and Beth M. Hammack, who preferred to raise the target range by 25 basis points at this meeting, a hawkish dissent that reinforces the view that the Committee's next move is more likely to be a hike than a cut. Investors are cautious ahead of tomorrow's US midterm elections, and the Federal Reserve's recent hawkish stance and elevated Treasury yields continue to provide some support for the dollar. Today's US calendar includes the S&P Global final Manufacturing PMI and the ISM Manufacturing PMI, both for October, due in the early afternoon London time; neither is likely to be a primary mover for GBP or EUR unless the ISM prints significantly away from consensus.

Technical Picture:

GBP/USD: Resistance at 1.3453 (intraday), then 1.3489 and 1.3550. Support at 1.3428, then 1.3367 and 1.3325.
GBP/EUR: Resistance at 1.2010 (round number), then 1.2050. Support at 1.1950, then 1.1900 and 1.1860.
EUR/USD: Resistance at 1.1258 (recent technical ceiling per ActivTrades), then 1.1300. Support at 1.1150, then 1.1103 (recent low).
Outlook: Sterling's moves have been mechanically logical from the higher timeframes; daily and weekly charts show valid sideways channels, with the price having tested the lower boundaries in mid-October before rallying sharply, leaving the upper edges near 1.3650 and 1.3780 as longer-term targets. EUR/USD faces a near-term ceiling at 1.1258-1.1300 and requires a clear shift in the Fed/ECB rate differential to break higher with conviction.

Today's Calendar:

The ISM Manufacturing PMI is the highest-impact release of the day; a reading materially above 52 would reinforce the Fed's hawkish hold narrative and could trim early dollar losses, putting modest downward pressure on both GBP/USD and EUR/USD into the New York open.

Outlook:

Sterling's bias is modestly constructive into Thursday's BoE decision, with OIS pricing near-certain for a 25bp hike to 4.00% and the Budget now cleared without a gilt market shock; the key downside risk is a narrow or split vote that signals the MPC is close to its terminal rate, which would likely see GBP/USD give back gains toward 1.3367 and GBP/EUR slip below 1.1950. For EUR/USD, the pair is likely to remain anchored in the 1.1100-1.1300 range this week, with tomorrow's US midterm result the most immediate catalyst; a result that raises prospects of fiscal restraint could soften the dollar modestly and push EUR/USD toward the top of that range, while a dollar recovery on risk-off flows would test support at 1.1150.

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.