Pound to Euro Steadies

Modified: Wednesday, 4 March 2026 08:16 BST - Written by David Woodsmith

STORY LINK Pound to Euro Steadies

The Pound Euro (GBP/EUR) exchange rate seesawed on Tuesday as heightened tensions in the Middle East and shifting inflation expectations stirred volatility in the pairing.

At the time of writing, GBP/EUR was trading at €1.1470, moving within a relatively tight range.

The Euro edged higher at the start of Tuesday’s session but quickly lost momentum, even after stronger-than-expected inflation data from the Eurozone.

According to the latest consumer price index, headline inflation climbed from 1.7% to 1.9%, defying expectations that it would remain unchanged. Core inflation, which strips out more volatile items such as energy and food, also surprised to the upside, accelerating from 2.2% to 2.4%.

Ordinarily, firmer price pressures might lend the single currency some support by dampening expectations of European Central Bank interest rate cuts. However, EUR struggled to capitalise. The currency instead tracked losses as the US Dollar strengthened, with the Euro’s negative correlation to the ‘Greenback’ weighing heavily on demand.

Geopolitical developments added to the pressure. Comments from Ukrainian President Volodymyr Zelenskyy suggesting that escalating tensions in the Middle East could undermine Ukraine’s capacity to defend itself against Russia unsettled markets, further curbing appetite for the Euro.

The Pound came under early pressure against the Euro as a cautious market mood weighed on the increasingly risk-sensitive UK currency.

However, Sterling managed to claw back its losses as investors reassessed the outlook for Bank of England policy. Escalating tensions in the Middle East drove oil prices higher, fuelling concerns that renewed energy cost pressures could lift UK inflation and complicate the central bank’s path towards easing.

As a result, markets sharply scaled back expectations for imminent rate cuts. UK government bond yields jumped late on Monday and into Tuesday’s session. At the same time, money markets reduced the perceived likelihood of a March rate cut to 29%, down dramatically from around 80% just a week earlier.

This swift repricing of BoE expectations helped the Pound steady itself and limited losses against the single currency.

Short-Term GBP/EUR Forecast: Final PMIs in Focus

Investors will turn their attention to Wednesday’s final services PMI readings from both the Eurozone and the UK.

If the UK’s dominant services sector confirms strong activity or sees an upward revision from the preliminary estimate, the Pound could find fresh support against the Euro. Conversely, any downward adjustment may weigh on Sterling and inject added volatility into GBP/EUR.

In the Eurozone, the latest unemployment rate will follow later in the session. Economists expect joblessness to have remained at a record low in January. Confirmation of a tight labour market could offer the single currency some underpinning, particularly if it reinforces confidence in the bloc’s economic resilience.

Beyond the data, geopolitical headlines remain a key wild card. Developments in the Middle East are likely to keep markets on edge, with any escalation or signs of de-escalation capable of driving sharp swings in the exchange rate.

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TAGS: Pound Euro Forecasts