Pound to Euro Declines on Strengthening Rate Cut Outlook

Modified: Wednesday, 22 October 2025 23:15 BST - Written by David Woodsmith

STORY LINK Pound to Euro Declines on Strengthening Rate Cut Outlook

The Pound to Euro exchange rate (GBP/EUR) fell back towards the €1.14 handle on Wednesday after softer UK inflation data prompted investors to reprice expectations for future Bank of England (BoE) interest rate decisions.

At the time of writing, GBP/EUR was trading around €1.1487, down roughly 0.3% from Wednesday’s opening levels.

The Pound (GBP) slipped sharply after the Office for National Statistics (ONS) reported that headline inflation held steady at 3.8% in September, confounding forecasts for a rise to 4.0%.

Core inflation also cooled more than expected, easing from 3.6% to 3.5%, suggesting that underlying price pressures are fading faster than previously anticipated.

The data reinforced the view that UK inflation has likely peaked and could continue to drift lower in the months ahead, reducing the urgency for the BoE to keep policy tight.

As a result, markets scaled back expectations for how long the central bank will wait before cutting interest rates.

Before the release, investors largely assumed the BoE would delay its next rate move until early 2025 — but following the inflation miss, some analysts now anticipate the first cut could arrive before Christmas.

According to ING, “A cooler-than-expected CPI report in the UK is increasing downside risks for the pound as the BoE is now more likely to cut by year-end.”

The dovish shift in market sentiment weighed heavily on Sterling throughout Wednesday’s European session, keeping the Pound under broad pressure against its major peers.

The Euro (EUR), meanwhile, managed to strengthen against the Pound but faced headwinds elsewhere amid geopolitical tensions and cautious investor sentiment.

Reports that a planned meeting between US President Donald Trump and Russian President Vladimir Putin in Hungary had been cancelled unsettled markets, dimming hopes for progress toward a potential ceasefire in Ukraine.

The news tempered risk appetite and limited the single currency’s broader upside, even as it advanced modestly against Sterling.

Near-Term GBP/EUR Forecast: Weak Eurozone Confidence to Limit EUR Gains?

Looking to Thursday, movement in the Pound Euro exchange rate may hinge on upcoming Eurozone confidence data, with economists expecting a decline in sentiment across the bloc.

Any deterioration in business or consumer morale could restrict the Euro’s gains, particularly amid ongoing political uncertainty in France and persistent economic sluggishness in Germany.

In the UK, the Pound may remain on the defensive ahead of Friday’s CBI business optimism index, with markets wary that concerns over Chancellor Rachel Reeves’s forthcoming autumn budget could further dampen investor confidence in the near term.

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TAGS: Pound Euro Forecasts