US CPI, UK GDP and Oil Prices: What’s Next for Sterling, Euro and Dollar?

Key Highlight

• The Reserve Bank of Australia kept interest rates unchanged at 4.35%, as expected, but described monetary policy as “somewhat restrictive”. With inflation forecasts lowered and unemployment expected to rise, markets interpreted the statement as a sign that the rate hiking cycle may have reached its peak, putting pressure on the Australian dollar.
• Oil remains elevated following Monday’s 5% surge, with Brent trading near $88 and WTI around $82. Uncertainty surrounding US and Iran discussions over the Strait of Hormuz is keeping inflation concerns elevated and providing support for the US dollar ahead of tomorrow’s US CPI figures.
• UK 10-year gilt yields reached their highest level in around a week and a half as higher oil prices increased expectations for further Bank of England tightening. This is providing sterling with an additional source of support ahead of Thursday’s UK GDP figures.

Market Recap

Currency markets remained heavily influenced by the sharp rise in energy prices. Brent’s move towards $86 resulted in markets pricing approximately 28 basis points of further Bank of England rate increases and 38 basis points of additional European Central Bank tightening by the end of the year. This made both euro and dollar purchases more expensive.

The Australian dollar weakened after the RBA left rates at 4.35%. Governor Bullock’s comments that unemployment is likely to increase, alongside lower inflation forecasts, were viewed as dovish and reduced expectations for further rate increases.

The US dollar remained relatively firm as oil prices stayed high and uncertainty around the Strait of Hormuz continued. With US CPI due tomorrow, markets remain sensitive to any evidence that higher energy prices are feeding into broader inflation.

The yen was one of the biggest movers, with GBP/JPY rising by more than 1%. The move reflected a further reversal of last week’s coordinated intervention, with thin trading conditions during the Japanese Obon holiday adding to volatility.

Sterling also found support from higher UK gilt yields. The rise in borrowing costs is strengthening expectations that persistent inflation could keep the Bank of England cautious on rate cuts, giving the pound an additional driver ahead of this week’s GDP release.

Market Overview

The key focus for markets now shifts towards tomorrow’s US inflation data and Thursday’s UK GDP figures. Oil prices, central bank expectations and developments around the Strait of Hormuz are likely to remain important influences on currency markets throughout the week.

Euro vs Dollar

The euro continues to hold a stronger medium term trend, although the dollar has regained some ground as oil related inflation concerns increase.

A softer than expected US CPI reading could support the euro and potentially take EUR/USD towards its June highs. A stronger inflation figure would provide renewed support for the dollar.

Medium term, the euro retains an advantage as the gap between Federal Reserve and ECB rate expectations narrows. Markets currently expect the ECB to raise rates once more in September while the Fed remains on hold.

For a €250,000 transaction, a move towards resistance would save dollar buyers approximately $1,650, while a move back towards support could increase the cost by around $4,875.

Pound vs Dollar

GBP/USD remains finely balanced. Sterling has eased back as the dollar benefits from higher oil prices and renewed inflation concerns, but rising UK gilt yields are providing some underlying support.

Tomorrow’s US CPI is likely to be the immediate catalyst. A softer reading could allow sterling to move towards July’s highs, while a stronger inflation figure could push the pair back towards the middle of its current range.

The medium term outlook remains mixed, with expectations for a Bank of England hold and potential rate cuts in 2027 limiting sterling’s upside.

For a £250,000 transaction, reaching resistance could save dollar buyers approximately £670, while a move towards support could add around £1,377 to the cost.

Pound vs Euro

Sterling has the stronger near term outlook against the euro. The previous downward trend from mid to late July has been broken, while higher oil prices and rising UK gilt yields have increased expectations of further Bank of England tightening.

Thursday’s UK GDP release will be important in determining whether this support can continue.

Over the medium term, however, the outlook leans towards euro strength. Expectations that the ECB will continue catching up on interest rates, combined with weaker UK growth prospects, could gradually shift the balance in favour of the euro.

For a €250,000 transaction, a move towards resistance could save euro buyers approximately £1,097, while a move towards support could add around £1,700.

Other Currency Moves

GBP/JPY rose by more than 1%, making it the largest G10 move of the day. The continued reversal of last week’s intervention, combined with thin Japanese holiday trading conditions, pushed the cost of yen higher. Yen buyers would have paid approximately £2,100 more per £250,000.

GBP/NOK fell a further 0.19% overnight as the Norwegian krone benefited from elevated oil prices.

GBP/AUD was broadly unchanged despite the RBA’s dovish messaging, although the Australian dollar remains vulnerable if markets begin bringing forward expectations for rate cuts.

What to Watch

The RBA’s dovish stance and ongoing uncertainty around the Strait of Hormuz are the immediate themes for currency markets. However, the two events most likely to determine this week’s direction are tomorrow’s US CPI release and Thursday’s UK GDP figures.

For businesses planning international payments, the combination of elevated oil prices, changing central bank expectations and potentially significant economic data means currency markets could remain volatile over the coming days.

11th August  2026

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