GBP/USD and GBP/EUR market update

BoE Decision Eve Keeps GBP Bid; French Budget Vote and EUR/USD Below 1.1200 in Focus, Tuesday, 03 November 2026

GBP/USD: 1.3418 | GBP/EUR: 1.1988 | EUR/USD: 1.1193

GBP/USD is holding just above 1.3400 this morning, supported by expectations that the Bank of England may need to keep policy tighter for longer than markets had previously anticipated, while EUR/USD is struggling to sustain a move above 1.1200 as French sovereign stress and a resilient dollar weigh on the single currency. The session's primary event risk is the French National Assembly vote on the first tranche of the 2027 budget, with the OAT-Bund spread already at elevated levels; tomorrow's Eurozone CPI flash print will then set the tone for ECB December pricing ahead of Thursday's BoE decision.

Overnight & Market Tone:

GBP/USD remains comfortably above 1.3400 and continues to trade with a constructive tone, though technical analysts continue to point to resistance slightly higher up, suggesting further gains may require a fresh catalyst. EUR/USD is struggling below 1.1200, with the single currency finding some support against sterling as the pound's recent rally begins to lose momentum. The FTSE 100 is opening lower this morning, with a 0.4% retreat breaking a four-session run of gains that had taken the index to near three-month highs following relief over Chancellor Healey's inaugural budget and resilient third-quarter corporate earnings. Brent crude rose to around $107 per barrel on 3 November, up approximately 2% from the previous day, though headlines suggest the move is being tempered by hopes of a US-Iran breakthrough. The gilt market is relatively stable following Monday's easing, with the 10-year yield around 5.20%.

UK Data & Bank of England:

The domestic calendar is light today, with attention firmly on Thursday's MPC decision. The next Bank of England meeting concludes on Thursday 5 November 2026, and the MPC held Bank Rate at 3.75% for a sixth time at its September meeting, again by 6-3, with the same three members voting for 4%; inflation has since jumped to 3.5% with services inflation turning back up, and markets now price a November rise at better than 90%. Polymarket reports a 25bp increase probability of 93.5%, with no change at 6.5%. Megan Greene, Catherine Mann and Huw Pill have consistently voted for an immediate rise to 4%, and the key question for Thursday is whether any of the six holdouts shift their position, given that a 7-2 or wider majority would be read as more hawkish than the market currently prices. Fidelity International's eurozone economist has noted that the MPC will likely hike at both November and February, bringing Bank Rate to 4.25%, and then remain on hold for a period, implying slightly fewer hikes than markets currently expect. The 10-year gilt yield has eased to around 5.20%, reaching its lowest level since late September after Chancellor Healey's budget met the government's self-imposed borrowing rules and largely reassured investors. Treasurers should note that the accompanying Monetary Policy Report on Thursday will update the MPC's growth and inflation projections, and any upward revision to the inflation path would reinforce the case for further tightening beyond November.

European Backdrop & EUR/USD:

The ECB held its deposit rate at 2.5% at its October meeting, as expected, after raising it by 25 basis points in September; the Governing Council said it was well positioned to wait, despite rising energy prices and higher long-term borrowing costs. Eurozone inflation climbed to 3.8%, its highest since September 2023, driven by energy prices; President Lagarde said the ECB was not yet seeing additional second-round effects, while underlying inflation and wage growth remained broadly stable. Markets saw the October decision as a hawkish pause, with money markets pricing in a 67% chance of a December hike, and Deutsche Bank and UBS economists noting another increase remained possible as the ECB seeks to prevent energy inflation from becoming persistent. More recent OIS data is firmer: for the next ECB meeting on 17 December 2026, market pricing implies an 82% probability of a 25bp hike to 2.75%. The ECB's survey of 69 analysts points to a 2.75% deposit rate in December, with inflation near 2% only in late 2027, alongside subdued economic growth. Goldman Sachs Research also expects the ECB to hike in December, taking the deposit rate to 2.75% from its current 2.5%. The primary EUR-specific risk today is political. The OAT-Bund spread rose from around 56bp in January to 176bp on 23 October 2026, and the French National Assembly budget vote on 3 November and the S&P review on 27 November remain the next tests for the spread. As of 2 November, the OAT-Bund spread stood at approximately 159.9bp, with the French 10-year OAT yielding 4.91% against 3.31% for the German Bund, reflecting a significant risk premium on French debt. A passage of the budget's first tranche today could offer the euro some relief and allow EUR/USD to test the 1.1200-1.1210 area; a defeat would likely push the spread back towards 170bp and weigh on the single currency. For EUR/USD specifically, the pair is caught between two competing forces. On the one hand, an 82% market-implied probability of an ECB hike to 2.75% in December provides a structural floor, and a broad-based retreat in the US dollar on improving hopes for a diplomatic resolution to the Middle East conflict has offered some relief to the single currency. On the other, HSBC continues to favour a strong USD into 2027, with its FX Viewpoint dated 2 November 2026 noting the dollar outlook remains strong, though the path could be volatile. The pair is therefore likely to remain range-bound between 1.1150 and 1.1220 until the French budget outcome and tomorrow's Eurozone CPI flash print clarify the near-term direction. The next flash estimate of euro area inflation with data for October 2026 is scheduled for 4 November 2026, with consensus pointing to a 3.9% headline reading; a beat would reinforce December hike pricing and provide a modest lift to EUR/USD.

US Backdrop:

At its meeting on 28 October 2026, the FOMC voted 10-2 to keep the target range for the federal funds rate at 3.75% to 4.00%, with dissenters Cleveland Fed President Beth Hammack and Governor Lisa Cook favouring a 25bp hike. The Federal Reserve kept rates at 3.75-4.00% but signalled that a December hike remains possible, as US economic activity is described as strong and inflation elevated; HSBC maintains its strong USD view into 2027, while warning that the path may be volatile. The next FOMC decision is on Wednesday 9 December 2026, and as of 2 November, OIS pricing implies a 73% chance of a 25bp hike at that meeting. Today's US calendar is light, with attention shifting to Friday's non-farm payrolls; the dollar is likely to take its near-term cues from the US midterm election results, which are expected to begin filtering through overnight.

Technical Picture:

GBP/USD: Resistance at 1.3450, then 1.3490 (recent range high). Support at 1.3400 (psychological), then 1.3360 and 1.3313 (last week's low).
GBP/EUR: Resistance at 1.2000 (psychological), then 1.2020. Support at 1.1960, then 1.1940 and 1.1900.
EUR/USD: Resistance at 1.1200 (psychological), then 1.1220 and 1.1260. Support at 1.1150, then 1.1100 and 1.1050.
Outlook: GBP/USD's constructive tone is intact while it holds above 1.3400, but the pair needs a clean break above 1.3450 to attract fresh momentum buyers ahead of Thursday's BoE decision; EUR/USD remains the more vulnerable of the two dollar pairs given French sovereign risk, and a failure to reclaim 1.1200 on a closing basis would increase the probability of a test of 1.1150 support.

Today's Calendar:

The French budget vote is the single most market-moving event of the session; a passage of Part 1 would offer EUR/USD relief towards 1.1220, while a defeat risks a fresh widening in the OAT-Bund spread and a test of 1.1150.

Outlook:

GBP/USD is likely to remain well-supported in the 1.3400-1.3450 range through Wednesday as near-certain BoE hike pricing provides a floor, with the key risk being a surprise shift in the MPC vote split on Thursday that could either accelerate a move towards 1.3490 (a broader majority for hiking) or trigger a sharp reversal below 1.3360 (a narrower majority or hold). EUR/USD faces a more asymmetric risk profile: a French budget passage and a firm Eurozone CPI print tomorrow could lift the pair back above 1.1220, but a budget defeat combined with a softer CPI reading would expose the 1.1100-1.1150 support zone and reinforce the case for EUR/USD underperformance relative to GBP/USD into the 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.