The EUR/USD pair closes July with modest gains near the 1.1500 mark, adding over 1.1% in the last trading week. Price action throughout the month was dull to say the least as investors remained clueless, although the pair managed to hit 1.1530 ahead of the close. The lack of action was compounded by persistent uncertainty, centered on developments in the Middle East and the United States (US) Federal Reserve’s (Fed ) monetary policy path.

Regarding the first, an escalation of the US-Iran war spurred US Dollar (USD) demand at the beginning of the week after continued tit-for-tat attacks around the Strait of Hormuz, which, by the way, is once again closed. Mood improved early in the week amid a pause in attacks and headlines suggesting a fresh round of negotiations.

Renewed war headlines, however, were quickly overshadowed by the US Fed monetary policy announcement on Wednesday. The USD plunged after the central bank decided to leave the benchmark rate unchanged, with the split vote leaving it at a range of 3.50%-3.75%. Three regional bank presidents dissented, preferring an immediate 25-basis-point (bps) rate hike: Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan.

Chairman Kevin Warsh chickens out

The USD collapsed following the Fed’s decision as investors believed Chair Warsh had chickened out. He kept repeating his commitment to curb inflation and to price stability, but the Fed left rates unchanged for the fifth consecutive meeting.

Of course, he did not provide clear guidance on the future path of monetary policy, not actually a surprise. And he failed to specify how he intends to resolve five-year-long inflationary pressure despite affirming that there is no “soft” inflation target.

“We are on the job, we will deliver, we are focused like a laser on making sure we can do it, but the suggestion that we’re going to be able to do it with our magic wand is one I want to disabuse you and everyone else of,” Warsh said.

Market players did not take well to the myriad empty words and the lack of action. However, bets on a September rate hike have increased after the dust settled. According to the CME FedWatch Tool, the chances of a hike increased to 65% from 55% one week before the Federal Open Market Committee (FOMC) announcement.

Still, there’s a long way ahead of September, and loads could happen in the way. The focus will remain on data — inflation and employment figures — and Middle East developments.

Meanwhile, the US published the preliminary estimate of the Q2 Gross Domestic Product (GDP), which showed that the economy expanded at an annual rate of 1.5%, missing expectations and below the Q1 reading of 2.1%. Other details of the report showed that the GDP Price Index jumped to 6.3% in Q2 from 3.6% in Q1, while the quarterly core Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge, increased 3.3% on a yearly basis, matching the market expectation. In June, the core PCE Price Index ticked lower on a yearly basis, to 3.3% from 3.4% in May, still far above the Fed’s 2% goal.

Middle East crisis here to stay

US President Donald Trump said for the umpteenth time on Friday that the war is “going well” and that the US “keeps winning.” No strikes between Washington and Tehran were reported by the end of the week, a short truce that at least was enough to contain fears. Still, unrest leads the region as traffic through the Strait of Hormuz declined to the levels seen before the Memorandum of Understanding (MoU), while Kuwait and Egypt reported Iranian attacks early Friday.

On a positive note, US President Trump announced an historic agreement to secure the disarmament of Hamas, while a senior Hamas official confirmed it to CNN, contingent on Israel upholding its obligations. This is the first time Hamas has agreed to a specific plan to hand over weapons.

The song remains the same: the US demands Iran drops its nuclear program, while Iran requests full control of the critical sea passage. Neither side is willing to give up on those terms.

Euro finds support in data

Data coming from Europe provided support to the Euro: Germany and the Eurozone (EU) released the preliminary estimates of the Q2 GDP. Annualized growth in Germany rose 0.9%, modest yet better than the 0.4% posted in Q1. The EU figure printed at 1%, up from the previous 0.3%.

German inflation met expectations as the preliminary estimate of the July Harmonized Index of Consumer Prices printed at 2.8% YoY, higher than the 2.4% from June. The EU HICP in the same period resulted in 2.5%, in line with expectations and slightly above the previous 2.4%.

Still, financial markets price in roughly a 65% probability that the European Central Bank (ECB) will deliver a 25 bps rate hike at the September meeting. Again, too early to speculate about that.

Regardless, European data was encouraging enough to spook concerns, which ended up helping the Euro on its way north. It should not be a surprise, however, if the Greenback resumes its rally on the back of war-related fears.

What’s next in the docket

The first week of August will be a busy one. Germany will kick-start macroeconomic releases by publishing June Retail Sales, while the US will publish the ISM Manufacturing Purchasing Managers Index (PMI) on Monday. The ISM Services PMI will be out on Wednesday, while EU June Retail Sales are scheduled for Thursday.

S&P Global, alongside local banks, will release the final estimates of the July PMIs for major economies throughout the week.

Midweek, the focus will turn to employment as the US releases June JOLTS Job Openings, the July ADP Employment Change report, and July Challenger Job Cuts ahead of the July Nonfarm Payrolls (NFP) report scheduled for Friday. The US is expected to have added 91K new jobs in the month, up from the 57K added in June, while the Unemployment Rate is foreseen at 4.3%, up from the 4.2% posted in June.

EUR/USD Technical Outlook:

From a technical perspective, based on the daily chart, EUR/USD has partially recovered its bullish poise. The pair has run past a now mildly bullish 20-day Simple Moving Average (SMA) at 1.1430, although it remains below the 100-day and 200-day simple SMAs at 1.1568 and 1.1631, respectively, keeping the broader backdrop bearish despite the latest bounce. The 14-day Relative Strength Index (RSI) indicator turned lower but stands at 58, while the Momentum indicator holds flat above its midline, suggesting that buying interest has improved, though not enough to confirm a trend change.

In the weekly chart, EUR/USD maintains a mildly bearish near-term bias, holding below the 20-week SMA at 1.1565 while still trading above the 100- and 200-week SMAs at 1.1311 and 1.1032, respectively. Technical indicators have rotated higher, but remain below their midlines, reflecting the latest advance yet far from suggesting a bullish extension ahead.

On the topside, initial resistance is at the 100-day SMA near 1.1568, with the 200-day SMA at around 1.1631 as the next significant barrier if buyers extend the advance. On the downside, immediate support emerges at the 20-day SMA at 1.1424, where a break would expose a deeper pullback toward the June low at 1.1324.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Fed credibility questions underpin USD SSA spreads as EUR and GBP seen outperforming

According to TD Securities, recent price action has seen “US swap spreads have tightened, and the yield curve has steepened,” reshaping relative value across rates and credit markets. The bank argues that “questions around the Fed’s credibility are supportive for USD SSA G-spreads,” and, in this context, it “look[s] for front-end EUR and GBP to outperform vs USD” as investors reassess opportunities along the front end of major curves.

MUFG says the Bank of England’s hawkish hold should keep Sterling supported, but Governor Bailey’s pushback against imminent rate increases limits the scope for a sustained GBP/USD rally.

The Pound to Dollar exchange rate (GBP/USD) ended July around 1.3482 after gaining 1.75% over the month and rebounding strongly from lows below 1.33.

GBP/USD rose around 0.85% over the final 48 hours of July, reaching a high near 1.3495 and finishing close to the top of that range.

Over the past three months, the pair has traded between approximately 1.3142 and 1.3658, leaving the latest rate near the middle of its broader spring and summer range.

MUFG believes the Bank of England’s latest communication remains supportive for Sterling, although policymakers stopped short of signalling an imminent rate increase.

The Monetary Policy Committee left rates unchanged, with MUFG’s textual analysis describing the written contributions as consistent with a hawkish hold. Policymakers continued to emphasise inflation persistence, second-round effects and the risks posed by energy prices and geopolitical uncertainty.

The committee remains divided. MUFG’s framework placed Catherine Mann firmly in hawkish territory, followed by Huw Pill and Megan Greene, while Swati Dhingra and Alan Taylor remained on the dovish wing.

Mann’s shift was particularly notable, with her comments placing greater weight on inflation risks arising from Middle East tensions and volatile energy prices.

The press conference delivered a more balanced signal than the written statement, however.

MUFG scored the MPC contributions at 23.3 on its hawk-dove scale, compared with a softer 17.0 for Governor Andrew Bailey’s press conference.

Bailey explicitly warned markets not to leave the meeting believing that the MPC was “edging towards a hike”.

That distinction is important for Pound Sterling.

The BoE remains concerned enough about inflation to resist a dovish shift, supporting UK yields and the Pound, but it is not yet preparing investors for another tightening move.

According to MUFG, “the communication remains supportive, but the deliberate pushback against rate hike expectations limits the scope for upside.”

The Pound-Dollar exchange rate charts reinforce that mixed picture.

GBP/USD has recovered above both its short-term moving averages, but remains below the May high near 1.3658.

A clean move through 1.3500 would improve the immediate technical tone, while the 1.3550-1.3660 area is likely to offer stronger resistance.

Pound Sterling’s rebound can therefore extend while the Dollar remains under pressure, but MUFG’s assessment suggests the BoE alone is unlikely to drive GBP/USD decisively beyond its recent highs.

Our currency coverage draws on live market data, official economic releases and published bank research.

The EUR/USD pair closes July with modest gains near the 1.1500 mark, adding over 1.1% in the last trading week. Price action throughout the month was dull to say the least as investors remained clueless, although the pair managed to hit 1.1530 ahead of the close. The lack of action was compounded by persistent uncertainty, centered on developments in the Middle East and the United States (US) Federal Reserve’s (Fed ) monetary policy path.

Regarding the first, an escalation of the US-Iran war spurred US Dollar (USD) demand at the beginning of the week after continued tit-for-tat attacks around the Strait of Hormuz, which, by the way, is once again closed. Mood improved early in the week amid a pause in attacks and headlines suggesting a fresh round of negotiations.

Renewed war headlines, however, were quickly overshadowed by the US Fed monetary policy announcement on Wednesday. The USD plunged after the central bank decided to leave the benchmark rate unchanged, with the split vote leaving it at a range of 3.50%-3.75%. Three regional bank presidents dissented, preferring an immediate 25-basis-point (bps) rate hike: Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan.

Chairman Kevin Warsh chickens out

The USD collapsed following the Fed’s decision as investors believed Chair Warsh had chickened out. He kept repeating his commitment to curb inflation and to price stability, but the Fed left rates unchanged for the fifth consecutive meeting.

Of course, he did not provide clear guidance on the future path of monetary policy, not actually a surprise. And he failed to specify how he intends to resolve five-year-long inflationary pressure despite affirming that there is no “soft” inflation target.

“We are on the job, we will deliver, we are focused like a laser on making sure we can do it, but the suggestion that we’re going to be able to do it with our magic wand is one I want to disabuse you and everyone else of,” Warsh said.

Market players did not take well to the myriad empty words and the lack of action. However, bets on a September rate hike have increased after the dust settled. According to the CME FedWatch Tool, the chances of a hike increased to 65% from 55% one week before the Federal Open Market Committee (FOMC) announcement.

Still, there’s a long way ahead of September, and loads could happen in the way. The focus will remain on data — inflation and employment figures — and Middle East developments.

Meanwhile, the US published the preliminary estimate of the Q2 Gross Domestic Product (GDP), which showed that the economy expanded at an annual rate of 1.5%, missing expectations and below the Q1 reading of 2.1%. Other details of the report showed that the GDP Price Index jumped to 6.3% in Q2 from 3.6% in Q1, while the quarterly core Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge, increased 3.3% on a yearly basis, matching the market expectation. In June, the core PCE Price Index ticked lower on a yearly basis, to 3.3% from 3.4% in May, still far above the Fed’s 2% goal.

Middle East crisis here to stay

US President Donald Trump said for the umpteenth time on Friday that the war is “going well” and that the US “keeps winning.” No strikes between Washington and Tehran were reported by the end of the week, a short truce that at least was enough to contain fears. Still, unrest leads the region as traffic through the Strait of Hormuz declined to the levels seen before the Memorandum of Understanding (MoU), while Kuwait and Egypt reported Iranian attacks early Friday.

On a positive note, US President Trump announced an historic agreement to secure the disarmament of Hamas, while a senior Hamas official confirmed it to CNN, contingent on Israel upholding its obligations. This is the first time Hamas has agreed to a specific plan to hand over weapons.

The song remains the same: the US demands Iran drops its nuclear program, while Iran requests full control of the critical sea passage. Neither side is willing to give up on those terms.

Euro finds support in data

Data coming from Europe provided support to the Euro: Germany and the Eurozone (EU) released the preliminary estimates of the Q2 GDP. Annualized growth in Germany rose 0.9%, modest yet better than the 0.4% posted in Q1. The EU figure printed at 1%, up from the previous 0.3%.

German inflation met expectations as the preliminary estimate of the July Harmonized Index of Consumer Prices printed at 2.8% YoY, higher than the 2.4% from June. The EU HICP in the same period resulted in 2.5%, in line with expectations and slightly above the previous 2.4%.

Still, financial markets price in roughly a 65% probability that the European Central Bank (ECB) will deliver a 25 bps rate hike at the September meeting. Again, too early to speculate about that.

Regardless, European data was encouraging enough to spook concerns, which ended up helping the Euro on its way north. It should not be a surprise, however, if the Greenback resumes its rally on the back of war-related fears.

What’s next in the docket

The first week of August will be a busy one. Germany will kick-start macroeconomic releases by publishing June Retail Sales, while the US will publish the ISM Manufacturing Purchasing Managers Index (PMI) on Monday. The ISM Services PMI will be out on Wednesday, while EU June Retail Sales are scheduled for Thursday.

S&P Global, alongside local banks, will release the final estimates of the July PMIs for major economies throughout the week.

Midweek, the focus will turn to employment as the US releases June JOLTS Job Openings, the July ADP Employment Change report, and July Challenger Job Cuts ahead of the July Nonfarm Payrolls (NFP) report scheduled for Friday. The US is expected to have added 91K new jobs in the month, up from the 57K added in June, while the Unemployment Rate is foreseen at 4.3%, up from the 4.2% posted in June.

EUR/USD Technical Outlook:

From a technical perspective, based on the daily chart, EUR/USD has partially recovered its bullish poise. The pair has run past a now mildly bullish 20-day Simple Moving Average (SMA) at 1.1430, although it remains below the 100-day and 200-day simple SMAs at 1.1568 and 1.1631, respectively, keeping the broader backdrop bearish despite the latest bounce. The 14-day Relative Strength Index (RSI) indicator turned lower but stands at 58, while the Momentum indicator holds flat above its midline, suggesting that buying interest has improved, though not enough to confirm a trend change.

In the weekly chart, EUR/USD maintains a mildly bearish near-term bias, holding below the 20-week SMA at 1.1565 while still trading above the 100- and 200-week SMAs at 1.1311 and 1.1032, respectively. Technical indicators have rotated higher, but remain below their midlines, reflecting the latest advance yet far from suggesting a bullish extension ahead.

On the topside, initial resistance is at the 100-day SMA near 1.1568, with the 200-day SMA at around 1.1631 as the next significant barrier if buyers extend the advance. On the downside, immediate support emerges at the 20-day SMA at 1.1424, where a break would expose a deeper pullback toward the June low at 1.1324.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Fed credibility questions underpin USD SSA spreads as EUR and GBP seen outperforming

According to TD Securities, recent price action has seen “US swap spreads have tightened, and the yield curve has steepened,” reshaping relative value across rates and credit markets. The bank argues that “questions around the Fed’s credibility are supportive for USD SSA G-spreads,” and, in this context, it “look[s] for front-end EUR and GBP to outperform vs USD” as investors reassess opportunities along the front end of major curves.

UK economists expect the GBP/USD exchange rate to retreat in the near-term outlook as steady BoE rates and doubts over the durability of hawkish policy guidance weigh on Pound Sterling.

The Pound to Dollar exchange rate (GBP/USD) traded around 1.3443 on Friday morning after gaining more than 1.3% over the previous two sessions.

GBP/USD closed Thursday at 1.3461, leaving the pair 1.6% higher for July but still below the month’s 1.3558 peak.

Rabobank expects that recovery to fade, forecasting Cable in a 1.32–1.33 range over the next one to three months.

The bank’s argument is that markets have already tightened UK monetary conditions on the Bank of England’s behalf by pricing further rate increases and pushing borrowing costs higher.

“In RaboResearch’s view, the heavy lifting done by the market may help the Bank avoid an actual hike in policy rates,” Rabobank said.

Thursday’s BoE decision reinforced that possibility. Bank Rate remained at 3.75%, despite three policymakers voting for an immediate increase.

The vote looked hawkish, but the majority still preferred to wait for clearer evidence that higher energy costs were feeding into wages and domestic prices.

Rabobank believes markets will initially continue “taking the BoE’s hawkish rhetoric at face value and maintain its expectations of rate hikes”.

The risk is that investors eventually demand action.

The bank questioned whether another unchanged decision could cause markets to doubt whether the Monetary Policy Committee is “truly focused on its inflation mandate”, particularly if policymakers continue talking tough without raising rates.

The latest Exchange Rates UK forecast survey poll, see chart above, broadly supports Rabobank’s near-term caution. The median bank projection falls to around 1.33 by the end of the third quarter before recovering gradually through 2027 and moving above 1.40 in late 2028.

Rabobank is less convinced about the Pound’s medium-term prospects.

“Further out we see risk that UK fiscal concerns will combine with steady BoE rates to weigh on the pound,” the bank said.

The UK labour market remains central to that view. Before the energy shock, weaker employment conditions had supported expectations that the BoE would cut rates this year.

Recent signs of stabilisation have complicated the picture and may increase the risk of “second order price effects” as oil prices rise again.

Rabobank said stronger labour data or “another ramp higher in UK CPI inflation data” could increase pressure on the Bank “to put its money where its mouth is”.

Near-Term GBP/USD Forecast: Rabobank Targets 1.32–1.33 as BoE Credibility Faces a Test

Rabobank’s range implies that Thursday’s move above 1.34 will not be sustained.

A decline to 1.33 would reverse much of the latest rally, while 1.32 would return Cable towards the lower part of its recent trading range.

The Dollar side is also important. Sterling benefited when short-term US yields and the greenback fell after the Federal Reserve held rates steady, but Rabobank does not view that as enough to secure a lasting Pound advance.

Its central judgement is that the BoE may continue using hawkish language while avoiding an actual increase.

That strategy can support Sterling only while markets believe a hike remains credible. Rabobank’s 1.32–1.33 forecast suggests that confidence will become harder to maintain.

Our currency coverage draws on live market data, official economic releases and published bank research.

• The US dollar plunged against the Japanese yen, with no real news other than the Bank of Japan clearly intervened.

• That being said, this presents a buying opportunity. The 200-day EMA has held as support. We plunged all the way back down to the 158 yen level.

• I’m perfectly comfortable adding to this position.

• This will be about the 3rd or 4th time they’ve intervened. Really all they can do is slowly try to put the brakes on the destruction of the yen.

Unfortunately for the Bank of Japan, they will have very limited ways to get this trend to change. Really the only way they could do it is if they hiked rates aggressively, but that would destroy the Japanese economy. So, this is a sign of desperation I’m more than willing to take advantage of. Keep your leverage reasonable, and it’s something that you can do.

Interest Rate Differentials and Bullish Trend Persistence

I have taken a hit today, but most of my positions go back months, and they’re not huge. Cumulatively they are big, but in general, this is a market that I believe continues to go higher. I think the USD/JPY pair hits the highs again. We’ve already played this movie a couple of times in the past. It will be a grind to the upside. It won’t necessarily be easy; this does tend to spook traders, it has a certain effect, but the trend will not change just based on one action from the Bank of Japan.

The interest rate differential alone continues to get you paid, and it’s interesting because we’ve seen rates in America all over the place, but they are so much higher than Japan that the break-even point is much wider than it is with other currencies. I like this pair, I still buy it, this offers value that I can take advantage of.

Want to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

Christopher Lewis is a technical analyst and market commentator at DailyForex with more than two decades of trading experience in Forex and other leveraged markets. Based in Columbus, Ohio, he specializes in chart-based analysis of major currency pairs, stock indices, commodities, and energy markets, focusing on clear support and resistance levels, trend structure, and risk management. Christopher produces daily written and video analysis for traders who rely on technical setups to navigate volatile market conditions

As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire

The EURJPY pair maintained its sideways movement below the resistance barrier at 187.40 during yesterday’s trading before reacting to the negative economic data. This led to a sharp bearish move, as the pair slipped below the ascending channel support at 185.65, suffering significant losses and reaching 182.45, before quickly rebounding to stabilize around 184.75.

For now, we will rely on the 185.40 level as an important additional resistance barrier. Repeated stability below this level would confirm the pair’s shift toward the bearish scenario, with the price expected to move lower toward 184.00, followed by an attempt to confirm a break below the support level at 183.95.

The expected trading range for today is between 184.00 and 185.30

Trend forecast: Bearish

MUFG expects USD/JPY to move back below 160 over time, with suspected intervention and faster Bank of Japan rate hikes increasing the risks for Dollar buyers.

The Japanese Yen rallied sharply on Thursday, with USD/JPY falling from close to 164 to below 158 before recovering above 160 in Asian trading.

The move came amid widespread speculation that Japanese authorities had intervened in the currency market ahead of the Bank of Japan meeting. Intervention was not officially confirmed, although reports also suggested that the US had conducted a rate check on USD/JPY.

US Treasury Secretary Scott Bessent added to the pressure by describing the Yen as “very undervalued”, while Japan’s top currency official Atsushi Mimura acknowledged concerns over the recent weakness without commenting directly on intervention.

MUFG said the scale of the move was similar to previous episodes of official action.

“The scale of the USD/JPY move is quite similar to past Yen selling interventions including in 2024, but may have a bit more to go based on historical experience of perhaps more than a 5% move,” the bank said.

USD/JPY fell by more than five Yen during Thursday’s session before recovering part of the decline.

MUFG remains cautious on the pair heading into the weekend, particularly with speculative positioning still heavily tilted against the Yen.

“With JPY net shorts still elevated close to all-time highs, authorities may be looking to flush out these positions,” the bank said.

It added that traders were likely to become “more cautious on the near-term bets on JPY given the balance of risks.”

That said, MUFG does not believe intervention alone will be enough to produce a lasting reversal.

“Ultimately it boils down to fundamentals over the medium term,” the bank said. “For USD/JPY to achieve a more durable retracement lower, it would require real interest rates to rise more substantially, and for market concerns around fiscal sustainability to be addressed.”

USD/JPY Forecast: MUFG Targets a Move Below 160

MUFG expects the Bank of Japan to leave rates unchanged at its latest meeting, although dissenting votes in favour of a hike could strengthen expectations of earlier tightening.

The bank’s global and Japan teams forecast BOJ rate increases in September 2026 and January 2027, a faster path than markets currently price.

“This in part underpins our view for USD/JPY to move lower below the 160 levels over time,” MUFG said.

Governor Kazuo Ueda’s guidance will now be closely watched for any indication that policymakers are becoming more willing to accelerate the pace of tightening.

USD/JPY remains well above its January levels despite the latest sharp reversal.

Our currency coverage draws on live market data, official economic releases and published bank research.

MUFG warned that Sterling needed stronger September BoE hike conviction to advance, but Thursday’s guidance left markets with little reason to bring tightening forward.

The Euro to Pound exchange rate (EUR/GBP) traded around 0.8574 on Thursday afternoon after the Bank of England held interest rates at 3.75%, with Sterling failing to draw lasting support from a surprisingly hawkish 6–3 vote.

Huw Pill, Megan Greene and Catherine Mann backed an immediate increase, but the guidance suggested most policymakers remain prepared to wait for clearer evidence that higher energy costs are feeding into persistent domestic inflation.

EUR/GBP initially moved lower before rebounding above 0.8585, then settled back near 0.8574. The pair remained around 0.4% lower for July but was well above its mid-month low near 0.8467.

MUFG had argued before the announcement that the unchanged rate itself would not determine Sterling’s direction. With “nothing priced for today”, the bank said markets would focus instead on “the vote, the communication in the statement, the minutes and the updated forecasts”.

That proved accurate. The three dissenting votes looked supportive for the Pound at first glance, yet the wider message did not materially increase confidence that a September hike was coming.

MUFG had set a clear test for Sterling: “For market rates to move higher and the pound to advance in response to today’s meeting we will need to see increased conviction on a September rate hike.”

The decision did little to meet that threshold.

The Monetary Policy Committee acknowledged that inflation risks remain skewed higher, particularly because of energy prices and the uncertain geopolitical backdrop. However, it also pointed to “clear signs of underlying disinflation” and limited evidence so far of stronger second-round effects.

That combination leaves the Bank concerned, but not yet ready to act.

MUFG had warned that if the inflation forecasts showed prices returning to target over time, “the take-away is likely to be that there is time to assess the inflation risks”.

In that scenario, the bank said “pricing for a September rate hike could ease back somewhat, taking the pound lower”. Thursday’s Sterling reaction was consistent with that interpretation.

The intraday move captured the market’s changing reading of the announcement. EUR/GBP initially fell as traders reacted to the three votes for higher rates, but the decline quickly reversed once the guidance was absorbed.

The pair’s jump above 0.8585 suggested the vote count was not enough to convince investors that the next increase had moved materially closer. Its later retreat showed that the decision was not decisively dovish either.

Energy prices remain the strongest argument for keeping a hike in play.

MUFG said the backdrop had become “difficult with crude oil and natural gas prices rebounding significantly”, while a prolonged increase in energy costs “could certainly force the BoE to act, even in circumstances of mixed labour market conditions”.

That risk prevents markets from abandoning tightening expectations altogether. It also helps explain why Sterling’s losses were contained rather than severe.

The wider price history shows EUR/GBP recovering sharply after Sterling’s strongest run of the year.

The pair fell below 0.8470 in July before rebounding by more than a cent. Thursday’s decision has not broken that recovery, and the cross is again approaching levels that repeatedly contained declines during May and June.

The implication is straightforward: EUR/GBP does not require a major improvement in the Euro outlook to move higher. A modest reduction in expected UK rate support may be enough.

Near-Term EUR/GBP Forecast: September BoE Expectations Remain the Deciding Factor

MUFG expected Sterling to remain “well supported at these levels” only on the assumption that “pricing for a September rate hike holds up”.

After Thursday’s announcement, that assumption looks less secure.

The 6–3 vote keeps tightening risk alive, but the guidance suggests the majority is comfortable waiting. Unless energy prices rise sharply or incoming inflation data deteriorate, September may prove too early for another move.

A further decline in September hike expectations could send EUR/GBP back above 0.8590 and towards July’s high near 0.8619.

Pound Sterling would regain firmer support if markets conclude that the three dissenters represent the beginning of a broader hawkish shift. That would require stronger inflation evidence or clearer concern from the MPC’s swing voters.

The vote looked hawkish. The message was more patient. For EUR/GBP, that leaves the recovery from July’s lows intact.