Pound to Euro: GBP Rallies as BoE Pushes Back on Dovish Bets

Modified: Thursday, 18 December 2025 18:31 BST - Written by David Woodsmith

STORY LINK Pound to Euro: GBP Rallies as BoE Pushes Back on Dovish Bets

The Pound to Euro exchange rate (GBP/EUR) strengthened on Thursday after the Bank of England (BoE) struck a more cautious tone on future policy, tempering expectations for aggressive rate cuts.

At the time of writing, GBP/EUR was trading near €1.1423, up around 0.3% on the session.

The Pound (GBP) gathered momentum on Thursday, recovering from a subdued start to the day following the BoE’s final policy decision of 2025.

As widely expected, the central bank lowered interest rates by 25 basis points. However, the split within the Monetary Policy Committee proved more supportive for Sterling, with five members voting for a cut and four favouring no change.

More significantly, the BoE’s accompanying statement was firmer than markets had anticipated. Policymakers noted that “judgements around further policy easing will become a closer call”, signalling a more cautious approach to additional cuts.

This messaging contrasted with expectations for a distinctly dovish stance after softer UK inflation data and the Federal Reserve’s recent pivot, prompting a rebound in Sterling as investors reassessed the policy outlook.

The Euro (EUR) struggled to find support on Thursday, even after the European Central Bank (ECB) delivered its own policy announcement.

The ECB left interest rates unchanged and modestly upgraded its growth forecasts, but both outcomes were already priced in, limiting their impact on the single currency.

A pullback in the US Dollar (USD) also failed to provide much relief for the Euro, despite the pair’s typically strong inverse relationship.

Instead, geopolitical uncertainty weighed on EUR sentiment. The single currency came under pressure as EU leaders debated the potential use of frozen Russian assets to finance support for Ukraine. While some policymakers view the move as necessary, others have raised legal concerns and warned it could provoke retaliation from Moscow.

The debate highlighted divisions within the bloc and raised fears that Russia could escalate military action if its assets are redirected, leaving the Euro vulnerable.

GBP/EUR Forecast: Eurozone Consumer Confidence and UK Retail Sales in Focus

Looking ahead, Friday’s session begins with the release of Germany’s latest consumer confidence data. Sentiment is expected to hold steady into January, though any surprise could influence the Euro, with an improvement lending support and a deterioration weighing on the currency.

Later in the day, Eurozone-wide consumer confidence figures for December are also due. As with the German release, deviations from expectations could spark volatility in the Euro.

For the Pound, attention will turn to the UK’s retail sales report. Economists forecast a 0.5% rise in sales volumes for November, marking a partial recovery from October’s sharp 1.1% fall. However, signs of subdued consumer spending heading into the crucial Christmas period could undermine Sterling sentiment.

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TAGS: Pound Euro Forecasts