Pound to Euro Rate Drifts as Inflation Lift Proves Short-Lived

Modified: Wednesday, 21 January 2026 20:01 BST - Written by David Woodsmith

STORY LINK Pound to Euro Rate Drifts as Inflation Lift Proves Short-Lived

The Pound to Euro exchange rate (GBP/EUR) remained on the back foot on Wednesday, as stronger-than-expected UK inflation figures failed to provide meaningful support for Sterling.

At the time of writing, GBP/EUR was trading around €1.1456, moving sideways just above Tuesday’s year-to-date low of €1.1450, with traders showing little appetite to adjust positions.

The Pound (GBP) traded without much conviction as a firmer UK consumer price index failed to spark fresh demand.

December’s CPI release showed headline inflation accelerating to 3.4%, up from 3.2% in November and above forecasts for a smaller rise to 3.3%. This marked the first increase in inflation in five months.

While the data reinforced expectations that the Bank of England will keep interest rates on hold in February, it did little to shift broader market thinking around rate cuts later in the year, leaving Sterling largely unmoved.

A closer look at the data helped explain the muted reaction. The rise in inflation was driven mainly by higher cigarette duties and a seasonal increase in air fares. Core inflation, which strips out volatile components such as energy and tobacco, held steady at 3.2%, in line with expectations.

Meanwhile, the Euro (EUR) traded in a narrow range as momentum from the recent US Dollar selloff faded.

With the US Dollar finding its footing, the single currency was left without a clear external driver. EUR price action was also tempered by comments from European Central Bank President Christine Lagarde.

Lagarde addressed concerns over the inflationary impact of potential US tariffs, suggesting the effect would be limited. She acknowledged tariffs could have a modest influence on prices but stressed that eurozone inflation remains under control, describing the overall impact as “minimal”.

GBP/EUR Outlook: ECB Minutes and Sentiment Data Ahead

Looking ahead, Thursday’s focus for Euro traders will be the release of the European Central Bank’s latest policy meeting minutes. If the December accounts suggest policymakers remain comfortable keeping interest rates unchanged, the Euro could find some limited support.

The single currency may then face pressure from the Eurozone’s latest consumer confidence data. Forecasts point to a further dip in sentiment in January, which could weigh on EUR if confirmed.

For Sterling, attention turns to a pair of mid-tier UK releases, including December’s public sector borrowing figures and January’s CBI distributive trades survey. Evidence of rising borrowing or continued weakness in retail conditions could leave the Pound vulnerable.

Beyond the data, geopolitical developments linked to Greenland remain an underlying risk. Any fresh headlines could unsettle markets and inject additional volatility into the GBP/EUR exchange rate.

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TAGS: Pound Euro Forecasts