Pound to Euro Rate Slips as ECB Rate Hike Bets Build

Modified: Wednesday, 27 May 2026 20:16 BST - Written by Frank Davies

STORY LINK Pound to Euro Rate Slips as ECB Rate Hike Bets Build

The Pound Euro (GBP/EUR) exchange rate softened on Wednesday as changing central bank bets worked in favour of the single currency.

At the time of writing, GBP/EUR was trading at €1.1544, after striking a one-week low earlier in the session.

The Euro (EUR) strengthened on Wednesday as investors continued to price in further interest rate increases from the European Central Bank (ECB).

The latest ECB Financial Stability Review drew attention to the inflationary pressures linked to the war in Iran, reinforcing expectations that policymakers may need to keep tightening monetary policy.

The report also made clear reference to the prospect of higher borrowing costs, which helped to underpin EUR exchange rates.

Markets are now fully pricing in two ECB rate hikes over the next 12 months, while also assigning roughly a 50% probability to a third increase.

Meanwhile, the Pound (GBP) lost ground against the Euro as investors reassessed the outlook for UK interest rates.

Recent British economic releases, alongside signs that US-Iran peace talks are making progress, have encouraged markets to rein in expectations for further Bank of England (BoE) tightening.

While the BoE is still widely expected to deliver two rate hikes this year, traders appear less convinced of this outcome than they are of two increases from the European Central Bank.

This comparatively softer UK rate outlook left Sterling on the defensive against the single currency.

Near-Term GBP/EUR Forecast: Eurozone Economic Sentiment to Pressure the Euro?

Looking ahead, Thursday’s session begins with a speech from European Central Bank President Christine Lagarde.

Should Lagarde offer any signals that policymakers are preparing to raise interest rates again, the Euro could attract fresh support.

The ECB’s latest meeting minutes may then reinforce this narrative later in the day. Any signs of growing concern over inflation, or a greater willingness to tighten policy further, could bolster EUR exchange rates.

However, the Euro’s upside may be capped by the Eurozone’s latest economic sentiment index. Economists expect morale to have weakened again in May, after April’s reading hit its lowest level since November 2020, as the US-Iran war continues to cloud the bloc’s economic outlook.

Meanwhile, UK data remains scarce on Thursday, potentially leaving the Pound without a clear domestic catalyst.

As a result, GBP investors may continue to monitor the UK bond market. If gilt yields begin to climb again, Sterling could struggle to find support.

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TAGS: Pound Euro Forecasts