GBP Flat As Energy Prices Drive BoE Repricing

The Pound to Euro exchange rate traded in a narrow range on Thursday as markets continued to assess the economic implications of rising energy prices and the ongoing Middle East conflict.

DAILY RECAP:

The Pound (GBP) was broadly steady as investors continued to reprice expectations for Bank of England (BoE) interest rate policy.

Only a week ago, markets had largely priced in a March rate cut, with the probability of a 25 basis-point reduction sitting above 80%.

Those expectations have shifted sharply following the surge in global energy prices triggered by the Middle East conflict, which has lifted inflation concerns and complicated the BoE’s policy outlook.

Money markets now place the probability of a March cut closer to 20%, with analysts increasingly divided over the timing of the next move. Some expect the BoE to resume easing as soon as April, while others believe policymakers may delay until the second half of the year.

While a slower pace of rate cuts would normally support Sterling, investors remain cautious about the broader economic implications, particularly the potential drag on UK growth from higher energy costs.

At the same time, the Euro (EUR) also struggled to attract support.

The single currency was undermined by concerns that rising energy prices could threaten the European Central Bank’s (ECB) progress in bringing inflation back under control.

EUR sentiment was also dented by the Eurozone’s latest retail sales figures, which unexpectedly reported a contraction in consumer spending at the start of 2026.

The weak data added to concerns about the resilience of the Eurozone economy and limited the Euro’s ability to capitalise on Sterling’s cautious tone.

Near-Term GBP/EUR Forecast: Energy Prices Remain the Key Driver

Looking ahead, there is little in the way of major economic data scheduled for the remainder of the week that could significantly influence the Pound to Euro exchange rate.

Aside from a potential revision to Eurozone GDP for the final quarter of 2025, the economic calendar is relatively quiet.

As a result, broader market trends and geopolitical developments are likely to remain the dominant drivers for GBP/EUR.

Both Sterling and the Euro are expected to remain highly sensitive to developments surrounding the Strait of Hormuz and the potential impact of the current disruption on European and UK energy prices.

Any escalation in the Middle East conflict could amplify volatility in currency markets, particularly if energy prices continue to climb.