Key Levels To Watch In GBP/USD And GBP/EUR

The Pound to Euro (GBP/EUR) exchange rate slipped lower on Thursday as political risks at home and soft growth data continued to sap support for Sterling, while the Euro found modest resilience amid cooling inflation and cautious risk sentiment.

DAILY RECAP:

Pound Sterling has spent most of the session on the back foot as GBP buyers remained unsettled by the looming Gorton & Denton by‑election, viewed as a crucial test for Prime Minister Keir Starmer’s authority.

Polls suggest support is evenly split between Labour, Reform UK and the Greens, fuelling speculation that even a narrow victory could renew questions over Starmer’s leadership and prompt fresh political turbulence.

With memories of the Epstein ambassador scandal still lingering, the prospect of renewed internal dissent encouraged traders to trim exposure to the Pound.

The Pound briefly firmed in mid‑week trading as expectations for a Bank of England rate cut were pared back after recent hawkish speeches from policymakers and stronger‑than‑expected retail sales.

However, the relief was short‑lived; a soft GDP estimate showed the UK economy expanded by just 0.1% in the fourth quarter of 2025, undershooting forecasts and reinforcing concerns about sluggish domestic momentum.

Market pricing now reflects around a 60% chance of a 25‑bp cut at the next BoE meeting, keeping Sterling on the defensive.

Political risk has compounded the economic headwinds.

Two senior government aides resigned earlier in the week amid controversy over Starmer’s decision to appoint Peter Mandelson as ambassador to Washington despite his past associations.

Scottish Labour leader Anas Sarwar openly urged the Prime Minister to step aside, heightening rumours of a leadership challenge.

Cabinet ministers have since rallied behind Starmer, but the episode has added a risk premium to UK assets and pressured the Pound.

The Euro, meanwhile, enjoyed modest support despite the European Central Bank’s dovish tone.

Flash estimates showed Eurozone inflation eased to 1.7% year‑on‑year in January, its first reading below the ECB’s 2% target in over a year.

The decline reinforced expectations that policymakers will cut interest rates later in the spring, but the data also hinted at steady underlying momentum as German GDP returned to growth in the fourth quarter.

While lower inflation could ordinarily weigh on a currency, hopes that cheaper prices will bolster consumption and improve the bloc’s export competitiveness helped the Euro hold its ground.

External developments have also influenced trading.

Comments from US officials indicating that Washington might delay tariff hikes on European goods supported risk appetite early in the session, benefitting the Euro relative to the Dollar and limiting Pound losses.

Later in the day, however, a shift to safer assets as Wall Street equities retreated saw investors snap up government bonds and the US Dollar, capping gains in the GBP/EUR cross.

Near‑Term GBP/EUR Forecast: Data and By‑Election Outcomes to Drive Direction

With political uncertainty still hanging over Westminster, the immediate outlook for GBP/EUR is likely to hinge on the outcome of the Gorton & Denton by‑election and a slate of high‑impact data releases.

A convincing Labour hold could reassure markets and allow the Pound to recover some lost ground, while a shock loss or narrow win could rekindle leadership speculation and prompt further volatility.

On the economic front, investors will watch Germany’s consumer price index and the Eurozone’s final inflation figures to gauge how quickly price pressures are receding.

A sharper‑than‑expected cooling could cement expectations of ECB easing and weigh on the Euro, while stickier readings would argue for patience and potentially lend the single currency modest support.

For the UK, labour market data and January’s inflation report are due next week.

Signs of weaker wage growth and further moderation in consumer prices would embolden expectations of a BoE cut and keep Sterling subdued; by contrast, resilient earnings or sticky inflation might prompt a reassessment of rate‑cut bets and help the Pound claw back some of its losses.

Until these events play out, we forecast GBP/EUR will likely to remain range‑bound.