GBP/USD Outlook: UK GDP Surges as US CPI Puts Fed Rate Hike in Focus

Key Highlight

• US inflation takes centre stage: The US CPI release at 13:30 is the key market event today. Headline inflation is expected to rise by 0.4% month on month. With markets already pricing a 69% probability of a Federal Reserve rate hike next week, a stronger than expected core reading could push expectations close to certainty.

• UK growth strengthens sterling: UK GDP increased by 0.4% month on month in July, significantly ahead of the 0% consensus forecast. This marks the third consecutive month of stronger than expected growth, reducing pressure on the Bank of England to cut interest rates.

• Oil keeps inflation concerns elevated: Brent crude has moved above $108 a barrel, following a rise of more than 6% in the previous session. Renewed tensions around the Strait of Hormuz and further Houthi attacks are adding to inflation concerns and pushing bond yields and the dollar higher.

• Central banks remain under pressure: Markets are pricing a more hawkish path for all three major central banks as higher energy prices raise inflation risks. However, the probability of a BoE hike at next week's meeting remains relatively low at 18.7%, making its next decision less certain than those of the Fed or ECB.

Market Recap

Markets have started the day with several competing forces.

The UK economy provided a positive surprise, with July GDP growing 0.4% month on month compared with expectations of no growth. Services, manufacturing and industrial production all performed better than forecast. Strong hospitality spending during the World Cup and unusually warm summer weather were also reported as contributing factors.

In the US, producer prices increased 0.4% month on month, the strongest monthly increase since May. The data contributed to the rise in expectations for a Federal Reserve rate hike next week, currently standing at 69%. The dollar has continued to strengthen overnight, gaining a further 0.1%.

Meanwhile, the ECB delivered the expected rate increase. Markets are now fully pricing three additional ECB hikes by mid 2027, although some economists believe this may be too aggressive and expect the next increase to come later, potentially in December.

Oil remains an important influence across markets. Brent moving above $108 has increased inflation concerns, contributed to higher government bond yields and provided additional support for the US dollar.

Market Overview

The market is effectively operating in two stages today. Sterling initially benefited from the stronger UK GDP figures, with GBP/USD edging higher. However, the wider dollar strength, rising yields and renewed oil concerns have limited the move.

Attention now turns firmly to the 13:30 US CPI release. A softer inflation reading could provide further support for GBP/USD, while a stronger figure would reinforce expectations of tighter US monetary policy and potentially strengthen the dollar further.

EUR/USD

Near term: Sideways with a modest downside bias.

EUR/USD remains just below its 200 day moving average, which provided resistance yesterday. Continued oil related dollar strength is creating additional pressure, while today's US inflation data is likely to determine the next significant move.

Medium term: Cautiously lower.

The key uncertainty is whether the ECB ultimately delivers the rate increases currently priced by financial markets. Markets are expecting three further hikes by mid 2027, but some economists consider this expectation too aggressive. If the ECB fails to meet these expectations, the euro could come under renewed pressure.

What this means for a €250,000 transfer: A move towards resistance could save dollar buyers approximately $1,800, while a move towards support could increase the cost by around $1,950. The reverse would apply to euro sellers.

GBP/USD

Near term: Sideways with a modest upside bias.

The stronger than expected UK GDP figures provide sterling with some support and reinforce the argument that the BoE has limited urgency to reduce interest rates. However, US inflation remains the more important catalyst for GBP/USD today.

Medium term: Cautiously higher, but with two way risk.

Markets are now pricing a more hawkish BoE path, with four rate hikes priced by the end of 2027. If this is delivered, it could provide longer term support for sterling. However, an equally aggressive Federal Reserve would strengthen the dollar and limit GBP/USD gains.

What this means for a £250,000 transfer: A move towards resistance could save dollar buyers approximately £1,225, while a move towards support could increase the cost by around £1,725. The reverse would apply to dollar sellers.

GBP/EUR

Near term: Sideways with a modest downside bias.

The ECB's latest rate increase and more hawkish outlook currently give the euro an advantage. Strong UK GDP has provided some support for sterling, but the interest rate outlook remains an important consideration for this pair.

Medium term: Gradual sterling underperformance.

The ECB's tightening cycle could have further to run as inflation forecasts have been revised higher. This creates a potential medium term headwind for sterling against the euro. The key question is whether the BoE can match the pace of ECB tightening. If it cannot, GBP/EUR could gradually move towards the lower end of its recent range.

What this means for a £250,000 transfer: A move towards resistance could save euro buyers approximately £1,300, while a move towards support could increase the cost by around £2,000. The reverse would apply to euro sellers.

Bottom Line

Today's market is being driven by two very different forces. Stronger than expected UK GDP has given sterling an initial boost, but US inflation at 13:30 is likely to determine the broader direction of the G10 currency market.

With Brent crude above $108, higher energy costs continue to raise inflation concerns and keep pressure on central banks to maintain a tighter policy stance. The Fed currently has the clearest near term hike expectations at 69%, while the ECB is also being priced for further tightening. The BoE remains the more uncertain, with only an 18.7% probability of a hike next week despite the stronger UK economic data.

For businesses and individuals with upcoming international payments, today's US inflation figures could therefore create meaningful movement across GBP/USD, EUR/USD and GBP/EUR, making timing particularly important.

11th September  2026

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