– Written by
James Fuller
STORY LINK Pound to Euro Forecast: Strong UK Jobs, Inflation Fuel GBP Rally
The Pound to Euro exchange rate (GBP/EUR) surged to 17-month highs around 1.1930 after stronger-than-expected UK inflation reinforced expectations of a November Bank of England rate hike.
Pound Sterling has also benefited from surprisingly resilient employment data, while mounting French fiscal concerns and renewed selling in government bonds have kept the Euro under pressure.
GBP/EUR Forecasts: 17-Month High
The Pound to Euro (GBP/EUR) exchange rate extended its advance on Wednesday after stronger-than-expected UK inflation data reinforced expectations of a November Bank of England rate hike.
GBP/EUR climbed towards 1.1930, its strongest level in around 17 months, building on Tuesday’s gains following the stronger UK labour-market report.
The Pound has drawn support from a run of more resilient domestic data, while persistent concerns over French fiscal policy have continued to weigh on the Euro.
IG chief market analyst Chris Beauchamp had commented after Tuesday’s jobs figures; “This data has caught the market on the hop, with traders scrambling to respond and boost exposure to the pound. Good news has been a touch more prevalent for the UK of late, which is just the kind of framing the government needs heading into the budget.”
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MUFG has also highlighted the possibility of a broader shift in the trading range.
According to the bank; “EUR/GBP is currently attempting to break into a new lower trading range between 0.8200 and 0.8400 that was last in place between September 2024 and April 2025.”
That would correspond to GBP/EUR trading broadly between 1.19 and 1.22.
Inflation Surprise Cements November BoE Hike
UK consumer-price inflation accelerated to 3.5% in September from 3.1% in August, above consensus forecasts for a 3.4% reading.
The increase was driven largely by higher motor-fuel costs as the Middle East energy shock continued to feed through to household prices.
Underlying inflation also strengthened.
Core CPI increased to 2.8% from 2.6%, while services inflation rose to 3.7% from 3.4%, both slightly above market expectations.
The data followed Tuesday’s stronger labour-market figures, which showed the unemployment rate falling to 4.7% in the three months to August from 4.9%.
Regular earnings growth also held at 3.7%, while the early estimate for payroll employment showed a 13,000 increase in September.
Markets had already almost fully priced a November rate increase before Wednesday’s CPI data, and the stronger inflation reading has reinforced expectations that Bank Rate will rise from 3.75% to 4.00%.
The debate is therefore shifting towards how much further the Bank will need to tighten during 2027.
ING expects November and February hikes but still sees them primarily as insurance against second-round inflation effects rather than the beginning of a prolonged tightening cycle.
The bank has argued that underlying inflation remains considerably more contained than the headline rate suggests.
Other economists are more hawkish, with some now considering the possibility of a third rate increase next year if inflation remains above 4% for an extended period.
French Fiscal Stress Keeps Euro Vulnerable
The Euro remains under pressure from persistent concerns surrounding French public finances and political stability.
French 10-year government bond yields rose above 5% on Wednesday for the first time since 2002, while the spread over equivalent German debt widened towards 150 basis points.
The widening spread is approaching levels last seen during the Eurozone sovereign-debt crisis and continues to add a risk premium to the Euro.
ING had already highlighted the effect of French stress on the currency; “The euro is being affected through two channels: a direct one, where a fiscal risk premium (so far not extreme) has been added, and an indirect one via a repricing lower in ECB rate expectations.”
The combination of stronger UK rate expectations and French fiscal pressure has therefore continued to favour Sterling.
For GBP/EUR, the break above 1.1900 strengthens the short-term technical picture.
A sustained move above the 1.1920-1.1930 area would open the way towards 1.2000, while 1.1850 should now provide initial support.
The main domestic risk for the Pound remains next week’s October 28 Budget, where markets will be watching closely for evidence that Chancellor John Healey can preserve fiscal credibility while responding to the latest cost-of-living pressures.
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TAGS: Pound Euro Forecasts
