Sterling Leads G10 as BoE Decision Takes Centre Stage

Sterling enters Thursday as the G10's strongest performer since the US-Iran conflict began in late February. Today's BoE decision could be a defining event for sterling. The MPC is widely expected to hold at 3.75%, but the vote split is what could really move the pound. June's 7-2 hold showed two hawks already at the door. Any widening today shifts outlook on September hike pricing.

The backdrop remains live with the Fed votes, 9-3 to hold on Wednesday, the most divided FOMC since 2016. This was before US retaliatory strikes on Iran overnight restored dollar safe-haven demand and pulled DXY back to 100.99.

The session does not end with the BoE decision today. The US Q2 GDP and June PCE both land today, with core PCE consensus at 3.3%. A data surprise could set the tone into the weekend.

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GBP: Sterling Holds Firm as It Eyes Policy Signals

GBP/USD: 1.3373

GBP/USD pulled back to 1.3345 during the Asian session on Thursday after the pair struck a weekly high on the back of the post-FOMC dollar slide. By the early European session, however, sterling had steadied and clawed back up, with GBP/USD firming toward 1.3370 as BoE rate hike pricing reasserted itself.

The pound has held the title of top-performing G10 currency since the US-Iran conflict erupted at the end of February. That distinction reflects something structural. The BoE was already on a path toward tighter policy before energy price inflation complicated the picture further. Now, with the Strait of Hormuz closed for five months, external inflationary pressure keeps hike expectations alive, and these expectations tend to be sterling-supportive.

The Asian session slip traced directly to the dollar's recovery after a sharp post-FOMC drop on Wednesday. The Federal Reserve (Fed) held rates at 3.50–3.75% for the fifth consecutive meeting, and the initially dovish read of the hold sent the dollar lower. That move partially reversed once traders repriced the three dissents voting for an immediate 25 basis point hike, the most hawkish split since September 2016.

Today's BoE decision could prove to be the deciding event for sterling's near-term direction. The MPC is widely expected to hold the Bank Rate at 3.75%, its level since December. What matters most is not the rate decision itself but the vote distribution, too. At the June meeting, the committee voted 7-2 to hold, with Megan Greene and Huw Pill pushing for a hike to 4.00%. If today's vote shows further hawks crossing the floor, rate futures that are currently pricing a September hike at just above 50% and a full hike by November could shift higher, pulling sterling with them.

Governor Bailey has previously signalled that planned rate cuts are off the table given the ongoing war's inflationary transmission through energy costs. The return to a single set of forecasts, rather than a multi-scenario approach, would carry additional weight as a signal of increased conviction. For now, the pound's direction hinges entirely on how divided the MPC proves to be in its midday announcement.

Analysis suggests that the GBP/USD pair retains a lower bias linked to oil price dynamics, with a return below 1.3200 possible if the Fed's hawkish undertones crystallise into an actual September hike and if the BoE disappoints. On the upside, the GBP/USD pair needs a credible step toward September tightening from the MPC today to sustain a break above 1.3400. Elevated FX volatility, remarkably contained relative to the severity of geopolitical events, means the pair could move either way sharply.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3345 and Support sits at 1.3280

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EUR: Euro Climbs as Fed Dissent Softens the Dollar

EUR/USD: 1.1463| EUR/GBP: 0.8569

The euro extended gains against the dollar on Thursday, with the EUR/USD pair trading near 1.1460 as the knock-on from Wednesday's Fed decision continued to filter through. Three FOMC members voting to hike, Hammack, Kashkari, and Logan, initially read as hawkish. The dollar's sharp reversal on the day told a different story: a deeply fractured central bank in hold mode reads, at least tactically, as a constraint on the Fed's ability to move quickly.

The EUR/GBP pair nudged up toward four-week highs at 0.8585 before easing back to around 0.8577, sustaining the broader bullish structure with the pair holding above prior highs. Eurozone Q2 GDP data due today carries the expectation of a 0.2% bounce after a 0.2% contraction in Q1, a modest recovery at best. However, a confirmation of growth would provide a degree of macroeconomic credibility to the recent euro strength.

The Fed divergence story is driving the euro's gains against the dollar this week. With three dissenters pushing for higher rates and the chair refusing to provide forward guidance, the path of US monetary policy appears to be unclear. That uncertainty tends to weigh on the dollar in the short term. Fed Chair Warsh stated the Fed has "no tolerance for persistently elevated inflation", a rhetorical commitment that stops short of an action timeline, leaving the market to fill in the gaps.

FX strategists have flagged a three-month upside scenario for EUR/GBP towards 0.8700, citing the potential for BoE disappointment alongside political friction in the UK over fiscal consolidation. If that view gains traction and today's BoE fails to convince on September tightening, the euro could make further ground against sterling even as it broadly consolidates against the dollar.

For the moment, the EUR/USD pair's upside is supported by dollar softness rather than independent eurozone strength. The distinction matters: a strong PCE print or a hawkish GDP surprise in US data due later today could quickly reverse the dynamic, restoring dollar demand and capping the pair's advance.

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8585 and Support sits at 0.8540

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1500, 1.1450 and Support sits at 1.1380

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USD: Divided Fed, Escalating War, the Dollar Finds Its Floor

DXY: 100.99

The dollar index (DXY) recovered to around 100.99 on Thursday after Wednesday's sharp post-FOMC drop toward an over one-week low. The driver of that recovery is less the Fed, which, despite three dissents, ultimately delivered another hold, and more the intensification of the US-Iran conflict overnight.

US Central Command confirmed it completed a "heavy wave of strikes" against Iran on Wednesday night, targeting southern Iranian cities and Qeshm Island in retaliation for Iran's attempted attack on US military positions earlier in the week. Explosions were reported in Bandar Abbas, Kish Island, and Abadan. President Trump, who earlier stated "it's our turn to hit them," has left open the prospect of further military escalation.

The dollar's safe-haven appeal benefits directly from this environment. Renewed Hormuz disruption fears, higher oil prices, and the prospect of a prolonged regional conflict all point toward demand for the Greenback as a refuge asset even as the Fed's own rate path lacks clarity.

The July FOMC vote of 9-3 in favour of a hold confirmed that the central bank is not ready to move yet. Fed Chair Kevin Warsh removed forward guidance again; this was the second consecutive statement under his leadership to omit future rate signals and instead emphasised the Fed's "resolute commitment to price stability." His description of the three-way dissent as "a good family fight" suggests he is comfortable with internal division as a feature of deliberation rather than a concern to be managed.

Fed funds futures are now pricing around a 63% probability of a 25 basis point hike at the September meeting. The total expected tightening for 2026 has pulled back to approximately 33 basis points from around 42 basis points the day prior, suggesting some easing of near-term hawkish pressure after the three dissents failed to produce an actual move.

The key data for dollar direction arrives today: the advance estimate for Q2 GDP alongside June's Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge. Consensus sees core PCE easing marginally from May's three-year high of 3.4% to approximately 3.3%. A surprise either way on GDP and PCE arriving less than 24 hours after the FOMC hold could produce rapid repricing across dollar pairs. A stagflationary combination, soft growth alongside sticky inflation, would present the most complex read for the dollar's direction.

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Current Rate Table

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Market lookahead:

Thurs, July 30

• 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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