ECB Decision Day: Pound Under Pressure as Euro Holds

Sterling softens on cooler UK CPI and the new PM's fiscal flexibility signals. The ECB is expected to hold rates unchanged at 2.25%. The euro eyes key levels ahead of the decision. The dollar dips despite surging oil prices as Hormuz tensions deepen. The Fed decides next week. UK Retail Sales and global flash PMI figures arrive tomorrow.

---

GBP: Sterling Softens as Burnham Signals Flexibility

GBPUSD 1.3375

Cable traded near 1.3390 nudging higher from overnight lows but broadly flat on the session before trading near 1.3370. Sterling's mixed tone reflects a tug-of-war: dollar weakness props it up while cooling UK inflation and political uncertainty push it lower.

UK CPI came in at 2.6% year-on-year in June, below the 2.7% forecast and down from 2.8% in May. Cheaper motor fuel drove the bulk of the drop, but services inflation, i.e. the component the Bank of England (BoE) watches most closely, eased only marginally, from 3.7% to 3.6%. Core CPI held steady at 2.6%. This print is softer than expected, but not soft enough to suggest inflation pressure has meaningfully broken. The BoE's own projections point to CPI climbing back above 3% by year-end.

That context matters for rate expectations. Softer headline inflation reduces the immediate case for a BoE hike at the July meeting. Investor confidence in near-term tightening has eased accordingly, pulling one of the pound's key structural supports, the 3.75% Bank Rate premium over the ECB's 2.25%, into the spotlight. For now, that differential holds, but the debate over whether the BoE moves next shifts following this data.

On the political front, new Prime Minister Andy Burnham, the UK's seventh prime minister in just over a decade, entered office on 20 July signalling he would use "flexibility within the fiscal rules" and push borrowing toward the limits of what investors tolerate. At his first cabinet meeting, he pledged fiscal discipline and stressed commitment to the existing rules. Investors are watching to see whether that flexibility stays within bounds or stretches them. Signals pointing toward looser borrowing could weigh on gilt sentiment, and in turn on sterling.

EUR/GBP appreciated for the sixth consecutive session, with bulls testing last week's highs at 0.8645. The cross has rallied close to 0.9% over the past week, tracking as its strongest weekly performance since May. That move is largely a pound story, soft CPI and Burnham's spending posture combining to keep sterling offered on the crosses.

Tomorrow's UK Retail Sales (June) and the S&P Global flash PMIs for July (Composite, Services, Manufacturing) arrive as the next domestic test. GFK Consumer Confidence for July also arrives. A weak retail figure could compound the BoE's dilemma. A PMI surprise to the upside could offer sterling some support.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3400, 1.3422 and Support sits at 1.3323

---

EUR: Euro Firms Ahead of ECB Decision

EURUSD 1.1414 | EURGBP 0.8535

EUR/USD trades near 1.1430, advancing ahead of the ECB's July policy decision. Dollar softness is helping the euro hold above 1.14.

The ECB announces its rate decision today. The deposit facility rate currently sits at 2.25%, raised by 25 basis points at the June meeting amid upward revisions to the eurozone inflation forecast. The inflation forecast is now projected at 2.6% for 2026. Market pricing implies a 95% probability the ECB keeps rates unchanged at today's meeting. Although consensus suggests a surprise hike cannot be entirely ruled out, it remains firmly in the hold camp.

Eurozone headline CPI sits at approximately 2.9%, above France's 2.0% and Germany's 2.4%. That cross-country spread keeps the ECB cautious. The central bank's stated goal of keeping inflation expectations anchored and limiting second-round effects implies it does not want to ease prematurely. ECB Governing Council member Fabio Panetta noted mid-month that the bank aims to limit indirect and second-round effects of shocks.

What Lagarde says today will give more cues on the ECB's stance besides the rate decision itself. A tone that keeps September tightening on the table could lift the EUR/USD pair toward 1.1500. A more cautious or balanced press conference risks the pair pulling back toward the 1.1300–1.1360 support zone.

EUR/GBP's six-day run higher tells the same story from the other side. The euro benefits from the ECB's relatively firm stance, while sterling absorbs the domestic headwinds described above. The cross enters the ECB announcement near 0.8537 and targets the 0.8645 resistance zone.

Eurozone Consumer Confidence data for July also arrives today. Tomorrow brings flash PMIs for Germany and the Eurozone Composite, Manufacturing, and Services as the next data test for the single currency.

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8610, 0.8645 and Support sits at 0.8520

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1450, 1.1500 and Support sits at 1.1300

---

USD: The Dollar Holds Steady Near 101

DXY 101.15

The dollar index (DXY) trades near 101.00, lower on the session but holding its broader structure. The counterintuitive dynamic: oil prices surge on Strait of Hormuz tensions, yet the dollar softens. Improved risk sentiment outweighs the safe-haven bid for now.

The geopolitical backdrop is severe. President Trump threatened to destroy "one bridge or power plant" every time Iran attacks a ship transiting the Strait of Hormuz. Iran responded, stating it would strike US-linked infrastructure and energy facilities across the region. In parallel, Houthi rebels claimed attacks on two Saudi oil tankers in the Red Sea. Brent Crude rose to approximately $95.61 per barrel. Roughly 20% of global oil supply transits the Strait of Hormuz, and shipping traffic through the waterway remains extremely low.

Despite oil's surge, the dollar's response has been muted. The DXY's failure to extend higher in a genuine energy-shock environment reflects the complexity of the current macro setup: positive risk appetite from other corners of the market appears to offset what would typically be a straightforward safe-haven dollar demand.

The Fed's next meeting falls on 28–29 July. The Fed is expected to hold rates unchanged. Pricing via the CME FedWatch tool shows a 33.7% probability of a hike this month and a 76.8% probability of at least a 25 basis point hike by September. That pricing suggests it could keep the dollar from selling off hard, even as risk sentiment softens the near-term DXY trajectory.

US Initial Jobless Claims drop today and offer the next data point for the US dollar. The S&P Global Composite, Services, and Manufacturing PMIs for July arrive tomorrow.

---

Current Rate Table

---

Market lookahead:

Thurs, July 23

• ECB rate decision on deposit facility
• Eurozone Consumer Confidence (Jul)
• US Initial Jobless Claims

Fri, July 24

• UK Retail sales
• PMI release figures for composite PMI, service PMI and manufacturing PMI for UK, Eurozone, US

---

Stay Ahead in the Currency Game

Whether you're a daily FX trader or handle international transactions regularly, our 'Currency Pulse' newsletter delivers the news you need to make more informed decisions. Receive concise updates and in-depth insights directly in your LinkedIn feed.

Subscribe to 'Currency Pulse' now and never miss a beat in the currency markets!

---

Ready to act on today’s insights? Get a free quote or give us a call on: +44 (0)20 7740 0000 to connect with a dedicated portfolio manager for tailored support.

---