Pound to Euro Rate Ticks Higher, But Markets on High Alert

May 22, 2025 - Written by Frank Davies

STORY LINK Pound to Euro Rate Ticks Higher, But Markets on High Alert

After sliding to lows near 1.1820 on Wednesday, the Pound Sterling to Euro exchange rate (GBP/EUR) has recovered to 1.1860.

The British Pound has gained limited net support from the batch of UK and Euro-Zone data releases, but there was no knock-out blow, especially with UK manufacturing still in trouble.

Global market dynamics are liable to dominate with traders watching bond yields closely.

If budget fears intensify and US yields continue to move higher, the Pound is likely to suffer collateral damage with higher UK yields reinforcing budget fears and increasing reservations over the domestic outlook.

ING commented; “EUR/GBP is likely finding support from market instability borrowed from the US.”

It added; “We still like the chances of EUR/GBP below 0.840, (GBP/EUR gains above 1.1900) although calmer asset markets are likely a necessary condition.

The UK government borrowing requirement increased to £20.2bn for April from £19.2bn the previous year and the fourth-highest April requirement on record.


The fiscal 2024/25 budget deficit was revised down to £148.3bn from £152bn, but still £11bn above the OBR estimate.

Capital Economics deputy chief UK economist Ruth Gregory commented; “April’s public finances figures showed that the fiscal year got off to a poor start. This raises the chances that if the Chancellor wishes to stick to her fiscal rules, more tax hikes in the Autumn Budget will be required.”

Lindsay James, investment strategist at Quilter added; “Today’s figures will do little to ease growing concerns around the sustainability of the UK’s fiscal position”.

Debt interest payments edged lower to £9.0 bn in April from £9.5bn in April 2024.

The 10-year bond yield has increased to near 4.80% which will put further upward pressure on debt interest payments.

In this context, markets will be monitoring global bond markets closely as further upward pressure on US yields would tend to feed through into upward pressure on UK yields which would undermine the Pound.

The UK PMI manufacturing index dipped to a 2-month low of 45.1 for May from 45.4 and below consensus forecasts of 46.1.


The services-sector index, however, improved to a 2-month high of 50.2 from 49.0 and above market expectations of 50.0.

Business confidence edged higher, but employment declined at a faster rate. Output charges increased at the slowest rate for 2025.

Chris Williamson Chief Business Economist at S&P Global Market Intelligence commented; “After an awful April businesses reported a milder May. Business confidence has rebounded from April’s low which had seen confidence collapse to a degree not seen since the Truss Budget of 2022.

He added; although brighter news on tariffs and trade appears to have helped restore some confidence, sentiment about prospects in the year ahead is still subdued.

Danske Bank commented on the overall data picture; “this points to a more cautious cutting cycle from the BoE with more stagflationary tendencies with still elevated price pressures, which we see as GBP negative.”

The German IFO business confidence index edged higher to 87.5 for May from 86.9 previously and in line with consensus forecasts. A small retreat in the current assessment was offset by a recovery in the expectations component.

The Euro-Zone PMI business confidence manufacturing index improved to a 33-month high of 49.4 for May from 49.0 and above consensus forecasts of 49.2 while the services-sector index retreated to a 16-month low of 48.9 from 50.1 and below expectations of 50.4.

Output charges increased at the slowest rate for seven months.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: “The eurozone economy just cannot seem to find its footing.

He added; “The expectations index is still well below its long-term average. However, there are reasons for confidence in the longer term.”

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TAGS: Pound Euro Forecasts