The Pound to Euro (GBP/EUR) exchange rate traded in a narrow range on Thursday as investors digested the European Central Bank’s latest policy decision while rising UK borrowing costs kept Sterling under pressure.
At the time of writing, GBP/EUR was trading around €1.1720, little changed from Thursday’s opening levels.
DAILY RECAP:
The Euro (EUR) traded in a narrow range as markets digested the European Central Bank’s latest interest rate decision.
As widely expected, the ECB left interest rates unchanged at 2.25%, leaving investors focused on the central bank’s forward guidance.
Speaking after the decision, ECB President Christine Lagarde suggested rising energy prices are likely to keep inflation above target into the first half of 2027.
While this points towards further monetary tightening during the second half of 2026, Lagarde’s warning over downside risks to economic growth tempered expectations, leaving the Euro largely guided by broader market trends and a firmer US Dollar.
Meanwhile, the Pound (GBP) remained subdued as UK government borrowing costs continued to rise.
The yield on 10-year UK gilts climbed to 5.08%, its highest level in more than two months.
Although higher energy prices following renewed hostilities in the Gulf have contributed to rising yields, investors also remained concerned about the fiscal implications of Prime Minister Andy Burnham’s recent policy announcements.
Since taking office, Burnham has announced a series of measures aimed at reducing pressure on households and businesses, including scrapping VAT on domestic electricity bills, capping bus fares and cutting business rates for pubs, clubs and live music venues.
While these policies have been broadly welcomed politically, bond investors remain focused on how they will be financed without breaching Labour’s fiscal rules.
Near-Term GBP/EUR Forecast: Eurozone and UK PMIs in the Spotlight
Looking ahead, Friday’s preliminary PMI surveys are expected to be the main driver of the Pound to Euro exchange rate.
The Euro could strengthen if the latest Eurozone business activity surveys point to improving conditions across the bloc’s private sector.
Meanwhile, Sterling may come under pressure if the UK’s PMI figures show the services sector contracted for a third consecutive month.
The UK’s latest retail sales figures will also be closely watched, with forecasts pointing to a decline in sales during June that could present an additional headwind for the Pound.
