Pound Sterling Forecast: Will Softer Eurozone Inflation Weigh on EUR?

Modified: Monday, 1 September 2025 21:45 BST - Written by David Woodsmith

STORY LINK Pound Sterling Forecast: Will Softer Eurozone Inflation Weigh on EUR?

The Pound to Euro exchange rate (GBP/EUR) was trapped in a narrow range on Monday following the release of the Eurozone’s latest unemployment rate and the UK’s latest manufacturing PMI.

At the time of writing, the GBP/EUR was trading at around €1.1537, virtually unchanged from Monday’s opening levels.

The Euro (EUR) kicked off the week on strong form, advancing against most of its major peers on the back of several supportive factors.

The latest Eurozone unemployment figures showed the jobless rate holding at 6.2% in July, its lowest level on record, which helped underpin confidence in the bloc’s labour market and lent the single currency some support.

At the same time, thin trading conditions caused by the closure of US markets for Labour Day saw the US Dollar (USD) weaken, further boosting demand for the Euro due to the currency pair’s negative correlation.

The Pound (GBP) traded on a largely stable footing on Monday, with Sterling managing to post gains against several rivals despite the latest UK manufacturing figures pointing to further weakness.

August’s final manufacturing PMI showed the industry contracting for an eleventh consecutive month, slipping from 48.0 to 47.0 and falling short of expectations of 47.3.

The result highlighted ongoing pressures facing UK manufacturers as demand conditions remain subdued.

Even so, the disappointing data failed to generate any significant downside for the Pound, which continued to hold firm against most major peers throughout Monday’s European trading session.

GBP/EUR Forecast: Eurozone CPI to Drive Movement

Looking ahead to Tuesday’s European session, the Pound Euro (GBP/EUR) exchange rate is set to be influenced by the release of the Eurozone’s latest consumer price index (CPI).

August’s headline inflation is expected to hold steady at the European Central Bank’s (ECB) 2% target, while core inflation is forecast to edge lower from 2.3% to 2.2%.

Should the figures align with expectations and point towards easing underlying price pressures, this could reinforce speculation that the ECB will begin cutting rates sooner rather than later, weighing on the Euro.

For the Pound, Tuesday’s UK economic calendar remains sparse, leaving Sterling without a clear domestic driver.

As a result, GBP exchange rates are likely to track broader market trends and investor sentiment, leaving Sterling exposed to market volatility.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts