GBP/USD and GBP/EUR market update

Democratic Blue Wave Sinks the Dollar; GBP/USD Pushes Toward 1.3480 on BoE Eve as EUR/USD Breaks Above 1.1240, Wednesday, 04 November 2026

GBP/USD: 1.3479 | GBP/EUR: 1.1991 | EUR/USD: 1.1241

Democrats have won both the Senate and the House, taking control of Congress from Republicans in a decisive midterm result. Markets are interpreting the Democratic victory as a shift in the short-term narrative for the dollar, with the Dollar Index falling towards its lowest level since late September as traders reassess the outlook for US fiscal policy, growth, and inflation. GBP/USD has responded by pushing to 1.3479, with EUR/USD breaking above 1.1240, while GBP/EUR holds just below 1.2000 as both sterling and the euro benefit from the same dollar tailwind ahead of tomorrow's BoE decision.

Overnight & Market Tone:

GBP/USD rose to 1.3461 overnight, up 0.35% from the previous session, before extending gains to the 1.3479 area in early London trade. EUR/USD rose to 1.1260 at its session high, up 0.60% from Tuesday's close, before settling around 1.1241. London's FTSE 100 gained 0.4% in early trade, supported by the softer dollar and a recovery in risk appetite, though the index entered the session in a technically weakened state after a sharp prior-session sell-off, with geopolitical escalation and anticipation of the BoE decision keeping sentiment cautious across UK-listed industrials. The VIX fell 2% overnight as investors shed some nerves about both the AI trade and the oil price. Brent crude is trading around $103.12 per barrel in early London, down 0.46% on the day, having pulled back from recent highs above $104.

UK Data & Bank of England:

The UK calendar is light today, with the focus firmly on tomorrow's BoE decision. The Bank of England's next Bank Rate decision is due Thursday, 5 November 2026, announced at midday London time together with the November Monetary Policy Report, one of the Committee's four forecast rounds a year. The Bank is widely expected to raise interest rates from 3.75% to 4.00%, with financial markets pricing in three to four further quarter-point rises during 2027 after an expected November increase. As of 2 November 2026, OIS pricing implies a 94% probability of a 25bp hike at that meeting. The vote split will be closely watched: the MPC is expected to vote 7-2 in favour of a hike, with Goldman Sachs forecasting a 7-2 outcome and communications indicating the Committee is ready to respond if inflationary pressures continue to build, while refraining from offering a strong steer on upcoming meetings. September's MPC decision was a 6-3 vote to hold at 3.75%, so a shift to 7-2 in favour of a hike would represent a meaningful hawkish signal. A softer split (for example 6-3 or 5-4 for a hike) would likely pressure GBP/USD back below 1.3420. Today's UK data calendar also includes the final October services PMI, where confirmation of an acceleration in UK activity relative to the Eurozone could offer further support to GBP/EUR. The UK 10-year gilt yield has risen to around 5.42%, with the move attributed to external pressures including higher oil prices and elevated US Treasury yields, and market participants watching these metrics closely ahead of the BoE's November decision.

European Backdrop & EUR/USD:

The single most important Eurozone data release this week falls today. The data highlight for the eurozone is the flash CPI print for October, with headline inflation seen rising to 4.0% year-on-year from 3.8% previously, while the core rate is expected to remain steady at 2.5%. The figures still point to another rate hike from the ECB in December. The ECB's policy backdrop is well-established: the ECB has delivered two 25-basis-point hikes so far this year, in June and September, lifting the deposit rate to 2.50%. For the next ECB meeting on 17 December 2026, market pricing implies an 82.0% probability of interest rates increasing to 2.75%. The ECB's survey of 69 analysts points to a 2.75% deposit rate in December and inflation near 2% only in late 2027, alongside subdued economic growth. The French sovereign stress that has weighed on EUR throughout October remains a live risk. The OAT-Bund spread hit 176bp on 23 October 2026, the widest since 2011, before partially retracing to around 155bp by 29 October. A failed or heavily diluted French budget would signal to markets that the French political system cannot deliver fiscal consolidation, likely pushing the OAT-Bund spread wider and raising France's already-elevated borrowing costs. On the positive side for GBP/EUR, the UK and EU reached an agreement on Tuesday to ease post-Brexit restrictions on food and agricultural trade, with the deal expected to benefit British food exporters by removing some of the administrative barriers introduced following Brexit. The agreement also comes ahead of the planned UK-EU reset summit on 20 November, raising hopes that further progress could be made towards improving economic relations. For EUR/USD specifically, the pair has broken above 1.1240 this morning, with the euro taking advantage of the weaker dollar environment, supported by stronger economic data and a vigilant ECB, reinforcing an upside bias towards the 1.1250 area. The key question for the pair is whether the prospect of higher European interest rates can outweigh concerns about the region's economic outlook and the dollar's relative appeal. The rate differential remains a headwind: the federal funds target range stands at 3.75%-4.00% compared with an ECB deposit rate of 2.50%, a 125bp gap that continues to favour the dollar structurally. However, for EUR/USD, the current rate differential may be less important than how that gap evolves into year-end, and a Democratic Congress reduces the probability of further fiscal stimulus that could keep US rates elevated. A hot Eurozone CPI print this morning (above the 4.0% consensus) would reinforce December ECB hike pricing and could push EUR/USD towards the 1.1300 area; a miss would likely see the pair retrace towards 1.1180-1.1200.

US Backdrop:

The Federal Reserve kept rates at 3.75%-4.00% at its October meeting but signalled that a December hike remains possible, describing US economic activity as strong and inflation elevated. HSBC continues to favour a strong USD into 2027, while cautioning that the path could be volatile, and today's election-driven dollar weakness is precisely the kind of volatility that view anticipates. The USD faces a decisive period following the midterm elections, with the battle for control of Congress reshaping fiscal policy expectations and, indirectly, the path of US monetary policy in 2027. The US calendar today is light, with FOMC minutes not due until 18 November; the next major USD catalyst is the December FOMC meeting on 9 December, where markets are closely watching for signals about a possible rate increase.

Technical Picture:

GBP/USD: Resistance 1.3480 (intraday high / UOB target), 1.3510 (next upside level per UOB), 1.3550. Support 1.3410 (near-term floor per UOB), 1.3385 (strong support), 1.3360.
GBP/EUR: Resistance 1.2000 (psychological), 1.2020, 1.2050. Support 1.1960, 1.1930, 1.1900.
EUR/USD: Resistance 1.1260 (overnight high), 1.1300, 1.1425. Support 1.1200 (psychological), 1.1180, 1.1103 (recent low).
Outlook: UOB highlights a sharp pickup in upward momentum in GBP/USD, with the pair expected to hold above 1.3410 and potentially rise toward 1.3480, with 1.3510 seen as a higher resistance. EUR/USD's break above 1.1240 is constructive on a short-term basis, but the pair needs to clear 1.1260-1.1300 convincingly to shift the broader bearish structure that has been in place since the summer; a hot Eurozone CPI print today is the most plausible near-term catalyst for that move.

Today's Calendar:

The 10.00am Eurozone flash CPI is the pivotal release: a print at or above the 4.0% consensus would reinforce December ECB hike pricing and could push EUR/USD through 1.1260 and GBP/EUR back towards 1.1960, while a downside miss would likely see the euro give back a portion of this morning's dollar-driven gains.

Outlook:

The near-term bias across all three pairs is shaped by two competing forces: the structural dollar softness following the Democratic midterm sweep, and the hawkish UK rate story that peaks tomorrow at noon with the BoE decision. GBP/USD is likely to remain well-supported above 1.3410 ahead of the BoE, with a confirmed 7-2 hike vote and hawkish Monetary Policy Report the most plausible catalyst for a push through 1.3510; the key downside risk is a softer-than-expected vote split (6-3 or narrower), which would unwind some of the pre-decision premium and could see GBP/USD retrace towards 1.3360-1.3385. For EUR/USD, the pair's ability to hold above 1.1200 into year-end will depend on whether today's CPI print and the 17 December ECB meeting can close the 125bp rate differential gap with the Fed, against a backdrop of persistent French sovereign risk that continues to cap the euro's upside.

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.