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Euro stands tall against the British Pound despite the risk-off sentiment

  • EUR/GBP holds gains around 0.8550, with bulls testing three-week highs.
  • The Euro is drawing support from lower Oil prices and expectations of further ECB tightening.
  • An uncertain BoE monetary policy and concerns about the UK’s public finances are weighing on the Pound.

The Euro (EUR) consolidated gains, just below three-week highs against the British Pound (GBP) on Tuesday, trading sideways at the mid-range of the 0.8550s at the time of writing. The risk-off mood is weighing on Euro rallies, but GBP bulls are also subdued amid concerns about the UK government’s fiscal policy and caution ahead of the Bank of England’s (BoE) monetary policy meeting, due later this week.

A pause in hostilities between the US and Iran and the ensuing decline in Oil prices is underpinning the common currency, which is also drawing some support from the hawkish stance of last week’s European Central Bank (ECB) monetary policy.

The ECB left interest rates on hold, following a 25-basis-point hike in June, but signalled a further rate hike in September, as high energy prices keep pushing inflationary pressures higher.

BoE seen tolerating 3% inflation as risks stay below second-round threshold

In the UK, the focus this week shifts to the BoE, which is widely expected to leave its benchmark Bank Rate unchanged at 3.75%. Investors will look at the number of hawkish dissenters within the committee, and Governor Bailey’s comments at the press conference to confirm market expectations that the bank will hike rates in the last quarter of the year.

Economists at ING are sceptical about that posibility, though, as the Bank of England’s updated projections are set to show inflation running “fairly close to 3% in the second half of this year and into early next,” a level they argue remains comfortably within the Bank’s tolerance. In this context, their base case is that “the Bank stays on hold through 2026,” with policy easing pushed well into the next cycle. ING says it “currently project[s] two rate cuts from the spring of 2027,” but emphasises that this path is “contingent on there being no material fiscal stimulus at the Autumn Budget.”

Beyond that, the Pound has been on the back foot with investors wary about the financing for the new Prime Minister Andy Burnham’s spending pledges. Burnham announced caps on transport fares and electricity bills, triggering market concerns about further strains on public finances, a very sensitive issue in the UK after Liz Truss’s fiasco in 2022.

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British Pound tumbles as risk-off mood boosts the US Dollar

  • GBP/USD retreats from 1.3363 as risk sentiment turns defensive.
  • Chipmaking headlines pressure Sterling as markets await Fed decision.
  • BoE expected to hold rates despite July Oil-price shock.

The Pound Sterling retreats by 0.13% even though the Greenback is flat during the day, as risk appetite shifted sour on news that a Chinese state-backed company is producing chipmaking machines, prompting a sell-off in ASML, the Dutch-based company.  The GBP/USD trades at 1.3305, after reaching a high of 1.3363.

GBP/USD slips as chipmaking worries, Fed-BoE caution, UK political uncertainty weighed

The de-escalation of the Middle East conflict is a relief for major central banks, as Oil prices slide as the US paused attacks on Iran over the weekend. The US President Donald Trump warned of further military action if negotiations between Washington and Tehran fail. He said that attacks would be “very powerful.”

On Monday, the US economic docket featured Durable Goods Orders for June, which improved from -4% contraction to 0.3% MoM, missing estimates of 1.6% expansion. However, traders’ focus will be on the Federal Reserve (Fed) monetary policy meeting, which is expected to keep rates unchanged, with odds at 60%. The chances of a 25-basis-point rate hike are slim, at about 40%, according to Prime Terminal data.

Source: Prime Terminal

In the UK, the schedule was absent, but investors are also awaiting the Bank of England (BoE) monetary policy meeting. Here, investors are confident that the UK central bank will keep rates unchanged at 3.75% despite the jump in Oil prices in July.

Sterling would remain pressured as investors assess the intentions of the new government led by Prime Minister Andy Burnham.

GBP/USD Price Forecast: Technical outlook

Chart Analysis GBP/USD
GBP/USD daily chart

In the daily chart, GBP/USD trades at 1.3304, keeping a mild bearish bias as spot holds below the simple moving average cluster now aligned near 1.3367. The pair also remains under the broader downward resistance trend line projected from the 1.3465 break area, while the Relative Strength Index (14) around 43 suggests subdued upside momentum rather than outright selling capitulation.

On the topside, initial resistance is seen at the simple moving average zone around 1.3367, with a sustained break exposing the downtrend barrier linked to the 1.3465 region. On the downside, the next notable technical floor is the rising support trend line anchored near 1.3159, where buyers would be expected to regroup if bearish pressure extends.

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EUR/GBP Price Forecast: In a positive trend with bulls eyeing 0.8555 resistance

  • EUR/GBP dips found buyers at 0.8530, which keeps the 0.8555 high on the bulls’ focus.
  • A cease of hostilities in Iran and the decline in oil prices have given a fresh boost to the Euro.
  • The Euro is on a bullish correction after a 2.5% sell-off from June’s highs.

The Euro (EUR) has picked up towards the 0.8540 area against the British Pound (GBP) on Monday, after a mild pullback on Friday found support at 0.8530. The pair maintains the immediate bullish trend from mid-July lows at 0.8455, with bulls looking at three-week highs in the area of 0.8555. 

The Euro is drawing support from a moderate relief rally on Monday, as the US and Iran halted their hostilities, which allowed Oil prices to decline about 9% from last week’s highs, with the barrel of Brent Oil down to $87.40 from above $96.00 last Thursday. Eurozone countries are net Oil importers, and the Crude rally seen over the last few weeks had threatened to strangle economic activity.

In the UK, Prime Minister Andrew Burnham’s spending plans keep investors on edge while the focus this week shifts to the Bank of England (BoE) monetary policy decision. The BoE will, all but certain, leave interest rates on hold, but investors will be very attentive to the vote split and Governor Bailey’s press release to assess the chances of any rate hike in the near-term.

Technical Analysis: In a bullish correction following the June-July sell-off

EUR/GBP Chart Analysis

EUR/GBP trades at 0.8543, keeping a constructive near-term tone as it holds within a bullish channel from mid-July lows. The pair is correcting higher after a 2.5% decline from June highs, with momentum indicators hinting at a mild upside bias. The Relative Strength Index (14) is around 60, hinting at positive momentum, even as the MACD (12, 26, close, 9) has slipped marginally into negative territory.

The bullish structure maintains the July 8 and 24 highs at 0.8555 in play. Above that level, the top of the channel, now around 0.8565, and July 2 and 3 highs, in the area of 0.8575, are likely to test bulls.

On the downside, immediate support emerges at the confluence of the channel floor and July 23 and 24 lows, around 0.8530. Below here, a previous resistance area, around 0.8510 (July 17, 20 highs), is likely to be targeted ahead of the July 20 low, at 0.8483.

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British Pound strengthens beyond mid-1.3300s vs weak USD amid fresh Iran diplomacy hopes

  • GBP/USD attracts strong follow-through buying on Monday amid a broadly weaker USD.
  • US-Iran diplomacy hopes and receding Fed rate hike bets undermine the safe-haven buck.
  • Traders might refrain from placing aggressive bets ahead of the FOMC meeting this week.

The GBP/USD pair builds on Friday’s modest bounce from a three-week low and gains strong follow-through positive traction at the start of a new week. This marks the second straight day of a positive move and lifts spot prices above mid-1.3300s during the Asian session amid a broadly weaker US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, moves away from the vicinity of the monthly high, retested last week, amid reviving hopes for a diplomatic resolution to end a five-month-old US-Iran conflict. In fact, the US paused its bombing campaign following 13 consecutive nights of strikes on Iranian targets late on Friday, prompting Tehran to suspend its retaliatory attacks against Washington’s allies in the Middle East.

US ambassador to the United Nations (UN) Mike Waltz said that while forces remained locked and loaded, President Donald Trump wants to give negotiations a little bit of room. Traders were quick to unwind some of the geopolitical risk premium, undermining the safe-haven buck. Moreover, the latest developments trigger a sharp fall in oil prices and ease inflation fears, tempering US Federal Reserve (Fed) rate hike bets and further weighing on the Greenback.

Meanwhile, restricted shipping traffic through the Strait of Hormuz and the Bab el-Mandeb Strait helps limit losses for oil prices. USD bears might also refrain from placing aggressive bets and opt to wait for the outcome of the highly-anticipated two-day FOMC meeting on Wednesday. Investors will look for more cues about the Fed’s policy path, which, along with geopolitical developments, will drive the USD and provide some meaningful impetus to the GBP/USD pair.

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British Pound rebounds above 1.3300

  • GBP/USD rebounds to around 1.3325 in Friday’s Asian session. 
  • The US launched the 13th consecutive night of strikes against Iran. 
  • Traders await the UK June Retail Sales report on Friday for fresh impetus. 

The GBP/USD pair recovers some lost ground to near 1.3325, snapping the five-day losing streak during the Asian trading hours on Friday. However, the potential upside might be limited amid heightened military tensions in the Middle East. Traders brace for the release of the UK Retail Sales data, which will be published later on Friday. 

Renewed geopolitical tensions in the Middle East could underpin the US Dollar (USD) as a safe-haven currency. The US Central Command (CENTCOM) said it launched its 13th consecutive night against Iranian targets. US President Donald Trump said on Thursday that the US would hold Iran responsible for the Houthis’ actions and warned Iran and its Houthi allies would both soon receive a “major military punishment,” per the Guardian.

Traders expect the Bank of England (BoE) to keep its benchmark interest rate steady at 3.75% next week as it continues to assess the impact of the Middle East conflict. Financial markets were pricing in one or possibly two quarter-point interest rate hikes by the end of 2026, little changed from Tuesday, according to Reuters. 

The UK Retail Sales data could offer more clues about the UK interest rate path. Retail Sales are expected to show a decline of 0.3% MoM in June, compared to a rise of 1.2% in May. In case of a surprise upside reading, this could reinforce the Bank of England (BoE) to maintain an aggressive tightening stance, supporting the Cable. 

Pound steadies as markets look for BoE to hold Bank Rate at 3.75%

Analysts at Scotiabank note that policy expectations remain firmly anchored ahead of next week’s BoE decision, with “markets … expecting no policy change at the next MPC rate decision, where the Bank Rate is expected to be held at 3.75%.” This steady policy outlook, they suggest, continues to frame near-term trading conditions for the Pound against the US Dollar as investors look toward upcoming UK data for further direction.

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Trade of The Day – GBP/JPY

Facts:

  • The bounced off the lower limit of 1:1 structure at 217.52
  • Main trend on the pair remains upward

Recommendation: Trade: Long GBPJPY at market price Target: 220.16 Stop: 216.92

Opinion: Looking at GBPJPY chart, one can observe that the price reached the key technical support on Tuesday. This support is marked with the lower limit of 1:1 structure (green rectangles), as well as previous price reactions. In addition the price sits above the 100-period moving average from the H4 interval. Should buyers manage to hold the price above the support area 217.52-217.80, another upward impulse may be on the cards. We recommend taking a long position on GBPJPY at market price with two targets: 215.85 and 216.30 We recommend placing a stop loss order at 216.92

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UK CPI set to show receding inflation in June as GBP/USD fails at May highs

  • The UK’s ONR Office publishes the June CPI data on Wednesday.
  • The UK headline CPI is expected to ease toward 2.7% from a year earlier.
  • Core inflation is also seen easing toward 2.5% over the last 12 months.

The UK Office for National Statistics (ONS) will release the June Consumer Price Index (CPI) figures on Wednesday at 06:00 GMT, a print that will matter for markets. Consensus expectations point to inflation pressures still above the Bank of England’s (BoE) target, although losing further momentum.

UK consumer inflation remains one of the most important inputs for the BoE and typically carries real weight for the British Pound (GBP). Following the latest cautious hold by the BoE on June 18, investors now favour a steady hand by the ‘Old Lady’ at its meeting on July 30.

What to expect from the next UK inflation report?

Headline UK CPI is expected to clock 2.7% in the year to June, a tad lower than the May reading. On a monthly basis, inflation is seen gaining 0.1%, adding to the 0.2% increase recorded the previous month.

Core inflation, which strips out the more volatile food and energy components and is therefore more closely watched by the BoE, is forecast at 2.5% on an annual basis, down a tenth of percent from May.

How will the UK CPI data affect GBP/USD?

The BoE met expectations and kept the bank rate unchanged at 3.75% on June 18. However, the 7–2 vote split carried a slightly more hawkish tone, with Megan Greene joining Huw Pill in supporting a 25-basis-point increase. But the larger message is patience, with policy still firmly in wait-and-see mode and market pricing that reflects that stance.

In his latest comments last week, Governor Andrew Bailey said the renewed hostilities in the Gulf highlighted the instability facing the global economy. Turning to the UK, he argued that the country was supported by both its fiscal framework and monetary policy, while stressing that the central challenge remained economic growth.

Bailey added that the UK’s core banking system was resilient and that debt levels were not overstretched. However, he warned that sustainable economic growth would not be possible without financial stability.

Implied rates currently suggest nearly 43 basis points of tightening by year-end, while consensus sees the central bank keeping its policy rate unchanged at its next gathering on July 30.

Back to technicals, Senior Analyst at FXStreet, Pablo Piovano, notes that the recent multi-week recovery in GBP/USD appears to have encountered some initial hurdle in the 1.3550-1.3560 band near the July tops. “In case bulls regain the upper hand, the next barrier emerges at the May top at 1.3653 (May 11), followed by the YTD ceiling at 1.3868 (January 27),” he adds.

On the downside, Piovano sees initial contention at current yearly lows near 1.3140 (June 24). “Further weakness from here could expose a move toward the November 2025 base at 1.3010 (November 5),” Piovano adds.

Piovano also points out that momentum indicators remain somewhat bullish for now as the Relative Strength Index (RSI) hovers just below 54, while the Average Directional Index (ADX) near 18 suggests the current trend lacks muscle.

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British Pound struggles as traders evaluate BoE policy, UK political developments

  • GBP/USD could further depreciate amid differing inflation trends and rate expectations between the BoE and Fed.
  • Markets are monitoring fiscal strategy and cabinet choices under new Prime Minister Andy Burnham.
  • Upcoming UK labor, inflation, and retail data will dictate near-term Sterling volatility and direction.

GBP/USD steadies after three days of losses, trading around 1.3430 during the Asian hours on Tuesday. After recently surging toward two-month highs near 1.3550, the pair has moderated as foreign exchange traders evaluate shifting monetary policies between the Bank of England (BoE) and the US Federal Reserve (Fed) alongside political developments in the United Kingdom (UK).

From a macroeconomic perspective, central bank policy divergence remains the central pillar steering the exchange rate. While market participants anticipate eventual rate adjustments on both sides of the Atlantic, subtle differences in inflation stickiness and labor market strength determine relative yield appeal.

Domestic economic conditions in the UK are facing scrutiny as upcoming labor, inflation, and retail sales data will clarify whether the Bank of England can afford to hold monetary policy restrictive or if easing must accelerate. However, persistently high oil prices kept inflation fears alive, strengthening expectations that the UK central bank will hold interest rates elevated for longer.

As markets gauge the monetary policy trajectory, investors are also processing a leadership shift in Westminster following Andy Burnham’s elevation to Prime Minister. Taking the helm as Britain’s seventh Prime Minister in a decade, and second for Labour since 2024. He reaffirmed fiscal discipline while hinting at relief for taxpayers through a potential raise in the personal allowance. Attention now turns to his Treasury appointment, where reports point to Shabana Mahmood as a frontrunner for chancellor.”

Until clearer economic signals emerge from both central banks and upcoming growth figures, the GBP/USD pair is likely to oscillate, anchored by shifting interest rate expectations and broader global risk appetites.

In the US, economic indicators continue to present a mixed backdrop for the US Dollar (USD). Softening inflation trends have kept Federal Reserve rate cuts on the radar, preventing sharp Greenback rallies and offering baseline support for the British Pound (GBP). However, lingering geopolitical tensions in energy markets and steady global risk sentiment have provided episodic support to the dollar as a safe-haven asset, keeping upside moves in check.