Pound-Euro could remain under pressure unless the Bank of England delivers a hawkish message, while easing energy prices continue to support the single currency.
The Pound to Euro (GBP/EUR) exchange rate edged lower at the start of the week as easing concerns over European energy supplies helped underpin the single currency ahead of Thursday’s Bank of England policy decision.
At the time of writing, GBP/EUR was trading around €1.1694, down almost 0.2% on Monday.
DAILY RECAP:
The Euro (EUR) found modest support on Monday as hopes for a renewed US-Iran ceasefire triggered a sharp fall in European gas prices.
Optimism over de-escalation followed the US and Iran pausing hostilities over the weekend while diplomatic efforts continued behind the scenes.
The easing in geopolitical tensions prompted a sharp decline in energy prices amid hopes key shipping routes could soon reopen.
This provided relief for the Euro, which had faced headwinds late last week as markets grew increasingly concerned about the risk of a European gas shortage this winter.
The single currency also drew support from Germany’s latest IFO business climate survey after business conditions improved by more than expected in July.
Meanwhile, the Pound (GBP) traded in a relatively narrow range as investors continued to monitor developments in the UK bond market.
Encouragingly for Sterling, the benchmark 10-year UK gilt yield slipped back below 5%, reaching its lowest level since Andy Burnham entered Downing Street.
The decline suggested investors were becoming more comfortable with the new government’s fiscal direction after several days of heightened volatility, easing concerns that Burnham’s early spending commitments could significantly weaken the UK’s public finances.
Near-Term GBP/EUR Forecast: Upcoming BoE Rate Decision to Suppress Sterling?
Looking ahead, the Pound to Euro exchange rate may remain confined to a narrow range through the first half of the week as markets await Thursday’s Bank of England interest rate decision.
While no policy changes are expected, investors will be closely watching the Bank’s forward guidance.
Recent developments in the Middle East and their potential inflationary impact have increased uncertainty over the Bank’s policy outlook for the second half of 2026, which may discourage investors from taking large Sterling positions ahead of the decision.
Meanwhile, the Euro is likely to remain influenced by broader market sentiment ahead of Thursday’s preliminary Eurozone second-quarter GDP figures.
Our currency coverage draws on live market data, official economic releases and published bank research.
