GBP/EUR Forecast: Eurozone Inflation Hits ECB's 2% target

Modified: Tuesday, 1 July 2025 22:30 BST - Written by Frank Davies

STORY LINK GBP/EUR Forecast: Eurozone Inflation Hits ECB's 2% target

The Pound to Euro exchange rate (GBP/EUR) was largely muted on Tuesday following the release of the Eurozone’s latest inflation reading and the UK’s finalised manufacturing PMI.

The Euro (EUR) saw mixed trade on Tuesday as markets digested the Eurozone’s latest inflation figures.

Headline inflation ticked higher in June, rising from 1.9% to 2.0%, and returned to the European Central Bank’s (ECB) target.

The uptick prompted markets to scale back expectations for another near-term interest rate cut from the ECB, lending the Euro some initial support.

However, the single currency struggled to hold onto gains as broader market sentiment turned upbeat.

A prevailing risk-on mood dented demand for the Euro, seen as a safer asset, causing it to slip against higher-risk currencies throughout the session.

The Pound (GBP) traded unevenly on Tuesday, with action driven by a mix of domestic data and shifting market sentiment.

Sterling initially found modest support after the UK’s finalised manufacturing PMI for June was confirmed at 47.7, up from May’s 46.4.

While the uptick suggested a mild recovery in factory activity, the index remained in contraction territory, limiting any sustained upside for the currency.

Instead, the Pound’s performance was more heavily influenced by the prevailing market mood.

As risk appetite improved, GBP gained ground against some traditional safe-haven currencies, reflecting its increasing sensitivity to risk.

However, any broader advances were tempered as traders grew anxious ahead of a speech from Bank of England (BoE) Governor Andrew Bailey.

With speculation over future rate cuts still in play, investors were on alert for any dovish signals that could weigh on the Pound later in the session.

Looking to Wednesday’s European session, the Pound Euro (GBP/EUR) exchange rate is likely to be influenced by the Eurozone’s latest labour market figures.

The bloc’s unemployment rate for May is forecast to hold steady at 6.2%, its lowest level on record.

If confirmed, the data may provide a modest lift to the Euro by reinforcing confidence in the region’s labour market resilience.

Meanwhile, the Pound will have no major UK economic data to draw direction from.

In the absence of domestic releases, GBP movement will likely hinge on broader market sentiment.

If risk appetite holds firm, the Pound could find some support, though significant movement may be limited in the absence of fresh economic catalysts.

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TAGS: Pound Euro Forecasts