GBP/USD + GBP/EUR Market Update

GBP Gaps Lower as Strait of Hormuz Tensions Flare Anew, Brent Surges Above $95, Monday, 20 April 2026

GBP/USD: 1.3534 | GBP/EUR: 1.1483

Sterling opened the week on the back foot after the US Navy seized an Iranian-flagged vessel in the Gulf of Oman over the weekend and Iran reasserted control over the Strait of Hormuz, reversing the de-escalation optimism that had briefly pushed GBP/USD toward 1.3600 on Friday. GBP/USD pared recent losses after opening with a bearish gap, trading near 1.3500, though the pair's upside remains capped as the US dollar stays supported by heightened safe-haven demand amid re-escalating US-Iran tensions. The key watch-point today is whether ceasefire talks in Pakistan make any progress; any breakthrough would likely revive the risk rally, while a breakdown could push GBP/USD back toward the 1.3475 overnight low.

Overnight and Market Tone:

GBP/USD held steady above 1.3500 after touching a weekly low of 1.3475 in the early Asian session. GBP/EUR is holding near 1.1483, broadly supported by the fact that EUR/USD is also under modest pressure from the same safe-haven USD bid. Brent crude rose to $95.42/bbl on 20 April, up 5.58% from the previous session, surging toward $96 as Iran reversed plans to reopen the Strait of Hormuz after the US declined to lift its blockade on Iranian ports. The FTSE 100 closed at 10,661 on Friday, up 71 points or 0.67%, though futures point to a softer open this morning given the renewed geopolitical risk. UK gilt yields had fallen toward 4.7% last week as oil prices retreated on expectations of renewed US-Iran negotiations, but this morning's oil surge is likely to put renewed upward pressure on the long end. The VIX closed Friday at approximately 17.48 (per Cboe data), suggesting markets are not yet in a full risk-off posture, but the overnight move in crude will test that composure at the European open.

UK Data and Bank of England:

The ONS confirmed that CPI rose 3.0% in the 12 months to February 2026, unchanged from January. Core inflation was 3.2% in February (up from 3.1% in January), while services inflation stood at 4.3%, down from 4.4%. The critical next read is the March CPI print, due from the ONS at 7.00am on Wednesday 22 April. The conflict in the Middle East and the associated rise in energy prices is expected to lead to higher UK inflation; prior to the conflict, CPI was expected to fall to around 2% from April, but on 19 March the Bank of England said CPI is now likely to be between 3% and 3.5% in the second and third quarters of 2026 due to higher energy prices. At its March meeting, the MPC voted unanimously to maintain Bank Rate at 3.75%, citing the significant increase in global energy and commodity prices from the Middle East conflict, noting that prior to this there had been continued disinflation in domestic prices and wages, but that CPI inflation will be higher in the near term. The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, and is also assessing the implications for inflation of the weakening in economic activity likely to result from higher energy costs. The next MPC decision is due on Thursday 30 April, with the announcement at 12.00 noon UK time. Most analysts now believe the MPC will not cut interest rates at all in 2026 in order to protect the country from the threat of soaring inflation as prices rise because of the war, a sharp reversal from earlier-year expectations of two cuts. With the Strait of Hormuz still closed and high energy costs fuelling inflation, markets are pricing in nearly two Bank of England rate hikes by year-end. Governor Bailey has urged caution: he said it is too early to assess the full impact of the Iran war, describing it as a major energy shock and noting that its duration will be key for inflation. Policymaker Megan Greene said markets were right to scale back expectations for aggressive rate hikes.

European Backdrop:

At its 19 March 2026 meeting, the ECB kept its main interest rates unchanged, with the deposit facility rate left at 2.0%. Policymakers highlighted that the Middle East war has significantly increased uncertainty, creating upside risks for inflation and downside risks for growth; minutes from the March ECB meeting showed the bank acknowledged the environment could change rapidly. Trader consensus on the ECB's 29-30 April Governing Council meeting prices a 73.5% chance of no change to the 2% deposit facility rate, reflecting the bank's March decision to hold steady despite upwardly revised 2026 HICP inflation projections to 2.6% from energy shocks tied to Middle East tensions. March eurozone inflation surged to 2.5%, above the 2% target, driven by soaring oil prices, yet core pressures remain contained around 2.3%, supporting a pause amid modest 1% GDP growth forecasts. For GBP/EUR, the net effect is broadly neutral in the near term: both central banks are on hold, both economies face the same energy shock, and the cross is likely to remain range-bound around 1.1450-1.1530 until the Wednesday CPI print provides fresh direction.

US Backdrop:

According to Reuters, the dollar headed for its highest level in a week at the start of Asian trading on Monday as the renewed Hormuz standoff revived safe-haven flows. USD bulls appear somewhat reluctant given diminishing odds for a Fed rate hike, which marks a significant divergence from bets on a Bank of England rate hike and acts as a partial tailwind for GBP. The US calendar today is relatively light, with the main focus falling on President Trump's warning that he is unlikely to extend the current truce with Tehran if an agreement is not reached before it ends this week, and a US delegation en route to Pakistan for further talks, with Iran yet to confirm participation.

Technical Picture:

GBP/USD: Resistance at 1.3580, then 1.3600 (Friday's intraday high). Support at 1.3475 (overnight low), then 1.3420.
GBP/EUR: Resistance at 1.1530, then 1.1560. Support at 1.1450, then 1.1400.
Outlook: GBP/USD has recovered from its bearish opening gap and is consolidating in a 1.3475-1.3580 range; a sustained break above 1.3580 requires either a credible ceasefire signal or a softer-than-feared March CPI print on Wednesday. GBP/EUR remains anchored by the symmetry of the energy shock on both sides of the Channel, with the cross likely to take its cue from any divergence in Wednesday's UK CPI versus Thursday's German PPI.

Today's Calendar:

Today's domestic UK calendar is empty of tier-one releases, meaning GBP direction will be almost entirely driven by geopolitical headlines and oil price moves. The German PPI print at 08.00am will be watched for early evidence of energy pass-through into eurozone producer prices, which could influence ECB expectations and, by extension, GBP/EUR.

Outlook:

The dominant theme for GBP this week is the collision between a re-escalating Middle East energy shock and a pivotal domestic data point: the ONS March CPI release at 7.00am on Wednesday 22 April will be the first reading to capture the full impact of the oil price surge on UK consumer prices, and markets will scrutinise it closely ahead of the 30 April MPC meeting. A CPI print above 3.5% would likely reinforce market pricing for a hold (or even a hike) and provide GBP with a modest yield-support bid, though any gains will be capped by the growth headwind from higher energy costs. Recent data showed the UK economy gaining momentum before the conflict, with GDP rising 0.5% in February, well above expectations, but the conflict is expected to weigh heavily on the UK economy, pushing up borrowing costs and inflation, with policymakers facing a difficult balance between inflation risks and slowing growth ahead of the 30 April meeting. Treasurers with USD payables should note that the 1.3475 support area is the key level to watch; a break below would open the way toward 1.3420 and may warrant accelerating any near-term hedging requirements.

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. Vantry Capital Ltd is authorised and regulated by the Financial Conduct Authority.