By Noam Bennaiche
The Pound saw a muted reaction to this morning’s UK CPI inflation release. Annual inflation remained unchanged at 2.8% in the twelve months to May 2026, matching April’s reading and coming in below expectations for a rise. Lower food prices offset higher transport costs, keeping headline inflation stable.
The data presents a mixed picture for Sterling. On one hand, it reduces pressure on the Bank of England to raise interest rates tomorrow. On the other, many economists still expect inflation to move back towards 4% by year-end as the economic impact of the Iran conflict continues to feed through. The BoE decision is due tomorrow at 12:00 GMT, alongside the latest unemployment data, and markets will be watching closely for any change in forward guidance following today’s softer-than-expected inflation reading.
GBP/EUR slipped around 0.1% this morning following the news, but the reaction from the markets was underwhelming. The Euro has remained largely range-bound since last week’s European Central Bank decision. The ECB raised its deposit rate by 25 basis points to 2.25% on 11th June, as policymakers cited the inflationary impact of the Iran conflict on energy prices. However, the Euro struggled to extend gains following the decision, with EUR/USD holding steady as stronger-than-expected US inflation data offset support from higher Eurozone interest rates.
The US Dollar is trading cautiously ahead of the FOMC announcement at 19:00 GMT this evening. Markets are almost fully pricing-in a hold in interest rates at 3.50%–3.75%. President Trump publicly stated before the meeting that there was “no reason” to raise rates and that the Fed should be cutting them, placing Warsh in a difficult position, if he adopts a hawkish tone on inflation. As a result, markets will be paying close attention to the Fed’s statement and forward guidance.
With the FOMC decision, Warsh’s press conference, and tomorrow’s BoE announcement all in focus, the next 48 hours could prove pivotal for all three major currency pairs. A hawkish surprise from Warsh, whether through tougher language on inflation or a shift away from an easing bias, could provide fresh support for the Dollar. Conversely, a more cautious or market-friendly message may allow Sterling and the Euro to recover some of their recent losses.
Tomorrow’s Bank of England decision will be crucial in determining whether Sterling can continue to hold strong against the single currency, or whether the recent stability might ebb away. If you have an upcoming currency transfer, speak with one of our experts to ensure you make the most from your currency exchange.
Wednesday, 17th June
GBP — UK CPI (May) at 07:00 GMT
USD — FOMC Rate Decision at 19:00 GMT
USD — Warsh Press Conference at 19:30 GMT
Thursday, 18th June
GBP — UK Jobs & Wage Data at 07:00 GMT
GBP — Bank of England Rate Decision at 12:00 GMT
Friday, 19th June
GBP – UK Retail Sales at 07:00 GMT