GBP/USD + GBP/EUR Market Update

Sterling Slips to 1.3161 as PCE Data Looms; EUR/USD Holds Near 1.1357 as Brent Slides to Four-Month Low, Thursday, 25 June 2026

GBP/USD: 1.3185 | GBP/EUR: 1.1610 | EUR/USD: 1.1357

GBP/USD fell to 1.3161 on 25 June, down 0.05% from the previous session, consistent with the drift lower that has characterised the pair since Tuesday's 1.3190 close. Brent crude fell below $74 a barrel on Wednesday, its lowest level since before the US-Iran conflict, as increasing tanker traffic through the Strait of Hormuz and progressing peace talks boosted market confidence, removing a key inflation premium from both the ECB and BoE outlooks. Today's dominant event risk is the US May PCE release at 13.30 (London), with markets also watching for any further clarity on the Burnham fiscal programme ahead of a potential July transition.

Overnight & Market Tone:

Risk sentiment is cautious but not distressed, with the VIX closing at 18.63 on Wednesday evening (Cboe data), consistent with a market that is watchful rather than fearful. US bond yields tumbled on Wednesday as oil's slide to a four-month low prompted a broad reassessment of the inflation path, with the 10-year UST last quoted near 4.49% (Investing.com). The UK 10-year gilt yield fell to 4.736%, extending declines for a third session to an over two-month low, as weaker UK flash PMI data reinforced expectations of slower economic momentum; political uncertainty also eased incrementally as the Burnham succession narrative continued to firm. Today's intraday trading range for Brent futures is between $72.64 and $73.72, a further leg lower from Wednesday's sub-$74 print, which is broadly negative for energy-linked inflation expectations across both the UK and eurozone. GBP/EUR has edged up to 1.1610 from Wednesday's 1.1617, a marginal sterling softening on the cross as the oil-driven disinflation narrative weighs slightly more on the ECB's hawkish credentials than on the BoE's cautious hold stance.

UK Data & Bank of England:

At its meeting ending on 17 June 2026, the MPC voted 7-2 to maintain Bank Rate at 3.75%, with two members voting to increase Bank Rate by 0.25 percentage points to 4%. The hawkish dissent widened from April's 8-1 split, reflecting the committee's unease with sticky services inflation. UK CPI held at 2.8% in May 2026 (ONS), below the 3.0% markets expected, yet services inflation rose to 3.7% from 3.2%, and services inflation is the figure the MPC watches most closely because it tracks domestic, wage-driven pressure rather than imported energy costs. On 18 June, the Bank said, based on energy market pricing as of 15 June, that CPI inflation was expected to be "a little under 3% in 2026 Q3" and "a little over 3.25% in Q4," lower than it expected in its April forecasts. In contrast to market participants' broadly flat most likely path for Bank Rate, the UK short-term interest rate curve sloped upwards over the year ahead; in the lead-up to the June MPC meeting, the announcement of a peace deal had contributed to a shift in the OIS curve towards the bottom of its recent range, with an upward slope of around 30 basis points by end-2026. Markets therefore imply only a modest probability of a hike at the 30 July meeting, with the OIS curve suggesting the next move remains finely balanced between an extended hold and a single 25bp increase by year-end. Investors remain focussed on the implications for the UK's fiscal outlook, seeking greater clarity on Burnham's fiscal policy agenda; a key concern is the possibility of increased gilt issuance to finance higher public spending, which could further strain the UK's already fragile public finances. No major UK data releases are scheduled for today; the next significant domestic catalyst is the 30 July MPC decision, accompanied by a new Monetary Policy Report.

European Backdrop & EUR/USD:

The ECB decided to raise its three key interest rates by 25 basis points at its June meeting, citing Middle East war-driven inflation pressures; 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. The ECB also slightly lowered its eurozone GDP projections, forecasting expansion of 0.8% in 2026 (down from 0.9%) and 1.2% in 2027 (down from 1.3%). The combination of a single hike already delivered and a growth downgrade has left the ECB in a delicate position: for the next ECB meeting on 23 July 2026, market pricing implies an 89% probability of rates remaining at 2.25%, a sharp shift from the roughly 50% probability of a further hike that was embedded in pricing earlier in the week. The catalyst for this repricing is Brent's accelerating decline. Oil prices have dropped about 40% from their wartime peak, which materially erodes the energy-inflation justification that underpinned the June hike. Eurozone inflation rose to 3.2% in May, with energy price inflation at 10.9% and services inflation increasing from 3.0% to 3.5%; however, with Brent now trading near $73, the energy component of that print is already stale, and markets are beginning to price a softer July reading.

For EUR/USD specifically, the pair is holding near 1.1357, marginally above Wednesday's 1.1354 close. The US dollar has firmed sharply: the Dollar Index broke above 100 in June after the Federal Reserve held rates at 3.50%-3.75% on 17 June and signalled possible hikes, with US inflation at 4.2%; that has pressed EUR/USD lower even though the euro's own story turned more hawkish. The Fed-ECB rate differential (fed funds upper bound at 3.75% versus ECB deposit rate at 2.25%) remains a structural headwind for EUR/USD. The gap between the Bank of England at 3.75% and the ECB at 2.25% has narrowed to 150 basis points after the ECB's 11 June hike, trimming sterling's structural support. For EUR/USD, the near-term range is anchored between 1.1300 (the lower bound of the post-hike consolidation) and 1.1420 (the pre-June-MPC level). A softer-than-expected US PCE print today could provide a brief EUR/USD relief rally toward 1.1400, but the structural dollar bid limits the upside. Treasurers with direct EUR/USD exposures should note that the euro is forecast to be firm but range-bound through the rest of 2026, with a base case of EUR/USD in a 1.13-1.21 range, and that the pair currently sits toward the softer end of that band.

US Backdrop:

Core PCE inflation was revised higher to 3.3% for 2026 in the June FOMC Summary of Economic Projections (previously 2.7%), and the median projection for the federal funds rate was raised to 3.8% for 2026, suggesting the potential for a rate hike later this year. Ahead of the June decision, the market did not anticipate any cuts in 2026, and a quarter-point hike was expected by year-end, according to CME FedWatch. Today's May PCE release (13.30 London) is the week's most consequential US data point: the prior headline reading was 3.8% year-on-year and core was 3.3%. Also due today is the US final first-quarter GDP estimate. A PCE print that matches or exceeds the prior would cement the case for a Fed hike at the 29 July meeting and extend the dollar's structural bid against both GBP and EUR.

Technical Picture:

GBP/USD: Resistance at 1.3190 (Wednesday's close), then 1.3248 (Tuesday's high). Support at 1.3161 (today's early low, per Trading Economics), then 1.3120 (round-number and post-FOMC base).
GBP/EUR: Resistance at 1.1617 (Wednesday's close), then 1.1640 (recent intraday high). Support at 1.1590 (Tuesday's open), then 1.1535 (mid-June consolidation base).
EUR/USD: Resistance at 1.1380 (overnight session high), then 1.1420 (pre-June-MPC level). Support at 1.1340 (recent intraday low), then 1.1300 (post-hike floor).
Outlook: GBP/USD and EUR/USD are both biased lower into the PCE print, with the dollar's structural bid intact; GBP/EUR is range-bound in the 1.1535-1.1640 corridor, with the BoE-ECB rate gap providing sterling a modest floor but Burnham fiscal uncertainty capping the upside.

Today's Calendar:

The 13.30 (London) US PCE release is the session's defining event: a print at or above the prior 3.8% headline would reinforce the hawkish Fed dot plot and extend the dollar's bid, pressing GBP/USD toward 1.3120 and EUR/USD toward 1.1300.

Outlook:

GBP/USD bias remains modestly bearish into the PCE print, with the 1.3120-1.3190 range likely to hold unless data delivers a meaningful surprise in either direction; the key upside risk for sterling is a materially softer PCE that prompts a dollar unwind, while the downside risk is a hot print compounded by any Burnham fiscal signal that widens the gilt-Bund spread. EUR/USD is similarly capped near 1.1380-1.1420 by the Fed-ECB differential, with the 23 July ECB meeting and 29 July FOMC decision representing the next concentrated event-risk window for all three pairs.

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.