Iran's Surprise Attack and a Looming Fed Call Reprice Oil and the Dollar

The IRGC launched a surprise ballistic missile attack on US forces overnight, all intercepted; pushing Brent toward $87 and reviving energy-driven inflation concerns on the day the Fed decides. The dollar holds near a one-month high as markets await the FOMC today, with a fifth consecutive hold expected but Warsh's press conference tone is where the market’s real focus will be.

Sterling steadies above 1.3300, with tomorrow's BoE decision the next major catalyst. A hold at 3.75% is the market consensus but the vote split remains live. The euro trades near 1.1390 against the dollar. The EUR/GBP pair extends its nine-session rally above 0.8550. Australia's June CPI missed at 3.8%, softening the Australian dollar. All market’s focus is on central bank decisions in the next 48hrs.

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GBP: Sterling Steadies Ahead of a BoE Decision

GBP/USD: 1.3303 | EUR/GBP: 0.8568

Sterling starts the week on firmer footing, but investors have shifted their focus away from recent price action. Thursday's Bank of England (BoE) decision is now likely to set the tone. Consensus points to the Bank Rate remaining unchanged at 3.75% on another 7-2 vote, with the Monetary Policy Report, updated forecasts and meeting minutes due alongside the decision.

The GBP/USD pair traded around 1.3300 after the dollar eased before the Federal Reserve (Fed) meeting. The move reflected softer dollar positioning rather than fresh Sterling strength.

The pound tells a different story against the euro. The EUR/GBP pair continues its rally above the 0.8550 level, extending a recovery that has gathered pace through July despite no change in the official policy gap between the Bank of England (BoE) and the European Central Bank (ECB). The rate spread still favours Sterling by 150 basis points. That spread has barely moved since June. But the currency pair EUR/GBP has. That divergence tells a different story. Investors have started to reprice the BoE's path rather than question the ECB.

The Bank's latest forecasts carry an important limitation. Policymakers built them before the geopolitical premium began to fade from energy prices. Oil has pulled back from its recent highs after tensions in the Gulf eased, leaving parts of the Bank's inflation profile anchored to conditions that no longer exist.

June inflation strengthened that view. Consumer prices slowed to 2.6%, a 15-month low and below the Bank's previous projections. That release prompted investors to trim expectations that policymakers would need to keep rates restrictive for longer.

The change has played out most clearly in EUR/GBP.

The cross touched a one-year low above 0.8450 in mid-July when conviction around prolonged Bank of England tightening peaked. That view has gradually unwound. British data softened. Energy prices retreated. Expectations for future Bank Rate shifted lower. The ECB, meanwhile, continued to signal that its inflation fight has not finished.

Currency pairs often travel long distances without any change in official interest rates. They move when expectations move. The latest repricing reflects exactly that.

Attention now turns to Thursday's BoE MPC vote split, where markets have fully priced a hold. A third hawkish vote would surprise investors and reinforce expectations that some policymakers still worry about inflation persistence. An 8-1 vote, or unanimous decision, would strengthen the case that the BoE has started preparing the ground for a less restrictive path, which makes the minutes almost as important as the decision itself.

Historically, periods of policy repricing often coincide with wider moves across Sterling crosses as markets reassess interest-rate expectations. Attention now shifts to the BoE’s updated forecasts, vote split and guidance, which are likely to shape Sterling pricing through the coming sessions.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3350, 1.3420 and Support sits at 1.3250, 1.3200

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8600, 0.8650 and Support sits at 0.8530, 0.8500

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EUR: The Euro Holds Ground as Energy Reprices Again

EUR/USD: 1.1400

The EUR/USD pair holds ground for a second successive session, trading around 1.1390 as the dollar struggles ahead of the Fed's rate decision, with softer dollar positioning offsetting lingering geopolitical uncertainty.

The move comes at an interesting point in the cycle. Lower energy prices would typically ease inflation pressure across the euro area. Instead, policymakers continue to signal that inflation risks have not disappeared.

The ECB left rates unchanged at 2.25% at its July meeting, yet policymakers continued to point towards another hike in September. Several Governing Council members argued for an immediate move, warning that higher energy costs could still feed through into broader prices despite recent declines in crude. Markets now price a 70% probability of a September ECB rate hike, a move that would represent the second tightening step since the June 25bp rise, the first since 2023.

The case for tightening rests on sustained energy price pressure feeding into second-round inflation effects. The case for pausing rests on those pressures easing if the Gulf situation stabilises. Both scenarios run through the same barrel of crude.

Analysis suggests that unless oil prices drop significantly over the coming weeks, the ECB's own September macro projections are likely to point clearly toward another hike. Last night's IRGC surprise attack, which pushed Brent back toward $87, does not point toward significant oil price drops.

The Euro's outlook now depends less on today's energy prices than on how long inflation filters through wages and services. That distinction helps explain why the ECB still leans towards another rate hike.

Thursday's Eurozone preliminary Q2 GDP figures could reinforce that picture. Consensus expects the euro area economy to return to 0.2% quarterly growth after the previous contraction. Annual growth is expected to improve to 0.5%, while unemployment is expected to hold at 6.2%. The Economic Sentiment Indicator also points to modest improvement.

Friday shifts attention to inflation. Headline CPI is expected to edge up to 2.9%, while core inflation is forecast to hold steady at 2.4%.

Economic releases over the next two sessions could provide fresh evidence on growth and inflation across the euro area. Those updates may influence expectations for the ECB's next policy move and, in turn, pricing across Euro crosses.

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1450, 1.1500 and Support sits at 1.1350, 1.1300

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USD: The Dollar Consolidates Near Recent Highs Ahead of FOMC

DXY: 101.28

The dollar enters the Fed decision day with two competing forces pulling in opposite directions.

On one side, investors expect the Fed to leave rates unchanged. On the other hand, inflation risks have resurfaced after the Iran surprise attack on US military positions in the Middle East pushed crude oil sharply higher.

The US Dollar Index (DXY) held close to 101.28 after reaching a one-month high earlier in the week. Investors appear to have avoided large positions ahead of the Fed decision, but downside interest remains limited as geopolitical risks continue to support demand for defensive currencies.

WTI Crude rebounded above the mid-$81 area after Iran launched multiple ballistic missiles towards US forces. President Donald Trump also warned that military action could resume if diplomatic efforts fail, keeping supply disruption concerns firmly in focus.

Higher oil prices have revived inflation concerns across the United States. That has prevented a deeper pullback in the dollar despite expectations that policymakers will leave rates unchanged.

Gold also lost momentum before the Fed meeting. A softer dollar offered some support, but stronger oil prices and rising rate expectations capped demand for the precious metal.

The Fed’s July decision has effectively become a choice between maintaining a restrictive stance and tightening further. The current pricing shows investors are not debating whether the Fed will cut rates. The Fed's June dot plot turned hawkish; nine of 18 officials pencilled in at least one hike this year, and the median year-end rate forecast shifted from implying a cut to implying a rise. The statement was stripped of its earlier easing bias.

The market now assigns approx. 34% odds to a hike at today's meeting and close to 100% odds for September. Last night's oil move feeds directly into that September pricing. This meeting carries no dot plot and no updated economic projections, which means the entire informational weight of today's session falls on the statement language and Warsh's press conference tone. A reference to energy prices, second-round inflation risks, or a shortened easing horizon in either venue could push the dollar materially higher.

Oil prices are up roughly 20% in July, a figure that sits inside the Fed's near-term inflation read regardless of what the diplomatic trajectory does next week.

A hawkish hold could push the DXY above 101.50; a notably softer tone could push EUR/USD and GBP/USD toward higher. Both outcomes are live into this afternoon.

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Current Rate Table

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Market lookahead:

Wed, July 29

• Fed Interest rate decision, FOMC Conference

Thurs, July 30

• Germany’s GDP Q2
• Eurozone Consumer Confidence (Jul)
• Eurozone GDP Q2
• BoE Interest Rate Decision, Monetary Policy meeting, BoE Governor Bailey Speech
• Germany’s Consumer Price Index (Jul)
• US Core Personal Consumer Price Index (Jun)
• US GDP Annualised Q2

Fri, July 31

• Eurozone Core Harmonized Index of Consumer Prices (HICP) Inflation figures (Jul)

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