Will GBP & EUR Rally On Soft Inflation Print?

The Pound to Euro (GBP/EUR) exchange rate remained rangebound on Friday as risk‑off sentiment and central bank signals curbed volatility.

DAILY RECAP:

Pound Sterling found limited support after the UK economy eked out only 0.1 % growth in the fourth quarter of 2025, missing expectations for a modest 0.2 % expansion.

On an annual basis, GDP growth for 2025 was 1.3 %.

These softer numbers, combined with fragile consumer spending, reinforced expectations that the Bank of England will continue easing policy in 2026.

The Monetary Policy Committee voted narrowly to keep rates at 3.75 % at its February meeting, with four of nine policymakers favouring an immediate cut.

Governor Andrew Bailey suggested there is “scope for some further reduction” if inflation falls back to the 2 % target.

The Euro edged lower against the US Dollar even after Eurostat’s second estimate showed the eurozone economy grew 0.3 % quarter on quarter and 1.4 % year on year in Q4 2025.

The data confirmed steady expansion but failed to lift sentiment amid a broad risk‑off environment.

Investor nerves were frayed by concerns that rapid advances in artificial intelligence could erode white‑collar employment and by a tech‑driven equity sell‑off, prompting flows into safe‑haven currencies.

The US Dollar Index hovered near 97 as January’s non‑farm payrolls report showed 130 000 jobs added while weekly jobless claims remained elevated at 227 000.

Traders expect the Federal Reserve to leave rates unchanged in March but are watching today’s US consumer price index release closely.

An inflation print above the 2.5 % forecast could extend dollar gains, while a softer reading might allow risk assets and high‑beta currencies to rebound.

Surveys point to early signs of revival in UK manufacturing and services, which may help cushion Sterling’s downside.

Some BoE members have hinted that another quarter‑point reduction could come by late April, but others note that inflation remains among the highest in the developed world.

This leaves interest rate expectations finely balanced ahead of forthcoming data.

Near‑Term GBP/EUR Forecast: US CPI and Central Bank Signals

Market attention is firmly on the US CPI report.

A hotter than expected reading would likely strengthen the dollar and pull GBP/EUR lower, while a benign inflation print could relieve pressure on risk assets and allow sterling and the euro to recover.

In Europe, steady GDP and near target inflation mean the European Central Bank is unlikely to adjust policy in the near term.

With no major UK releases on the calendar, sterling’s trajectory will be guided by global risk appetite and evolving expectations of BoE policy.

Overall, the GBP/EUR exchange rate may continue to oscillate near recent ranges until a decisive catalyst emerges.