Pound Euro Exchange Rate Slips on Dovish UK Inflation Print

Modified: Wednesday, 22 October 2025 08:16 BST - Written by Frank Davies

STORY LINK Pound Euro Exchange Rate Slips on Dovish UK Inflation Print

The Pound Euro (GBP/EUR) exchange rate fell back on Wednesday after weaker-than-expected UK inflation data increased bets that the Bank of England (BoE) could begin cutting interest rates before the end of the year.

At the time of writing, GBP/EUR was trading around €1.14822, 0.35% lower on Wednesday’s opening levels.

The Pound (GBP) came under mild pressure after the Office for National Statistics (ONS) reported that consumer price inflation held steady at 3.8% in September, below market expectations for a rise to 4.0%.

Core CPI fell sharply from 4.6% to 3.5%, while services inflation stabilised at 4.75% versus forecasts of 4.8%, marking a clear downside surprise relative to the BoE’s latest projections.

The figures suggested that underlying price pressures are cooling more rapidly than policymakers anticipated, particularly in food prices — one of the BoE’s recent areas of concern — which fell on the month and now sit 0.5 percentage points below the Bank’s August forecast.

Following the data, markets increased bets on a BoE rate cut before year-end, weighing on Sterling and keeping the currency broadly rangebound through Wednesday’s European session.

The Euro (EUR) was similarly muted, lacking major domestic data or catalysts as investors awaited commentary from European Central Bank (ECB) President Christine Lagarde later in the day.

While the single currency often benefits from risk-off sentiment, traders were hesitant to make bold moves ahead of Lagarde’s speech, which could offer clues on whether policymakers are inclined to maintain higher rates for longer amid still-stubborn inflation.

A hawkish tone could help lift the Euro, while any dovish indications may limit the currency’s upside potential.

GBP/EUR Forecast: Market Focus Turns to Eurozone Inflation

Looking ahead, attention will shift to Thursday’s Eurozone consumer price index (CPI) data, which could set the tone for the Pound Euro exchange rate in the latter half of the week.

If the Eurozone’s inflation report confirms that price pressures remain sticky, the Euro may find some support, as this would bolster expectations for a prolonged period of higher interest rates from the ECB.

Conversely, a softer print could weigh on the single currency, potentially offering the Pound a reprieve after its recent losses.

With the UK data calendar now quiet, broader market sentiment and ECB commentary will likely dictate short-term movement in the GBP/EUR exchange rate heading into the weekend.

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TAGS: Pound Euro Forecasts