Pound-to-Euro Rate Hits Fresh One-Year High

Modified: Thursday, 2 July 2026 22:01 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Rate Hits Fresh One-Year High

The Pound Euro (GBP/EUR) exchange rate climbed to a fresh one-year high on Thursday, as easing UK political uncertainty and shifting central bank expectations lifted the pairing.

At the time of writing, GBP/EUR was trading at €1.1689, up around 0.2% on the day. The pairing had earlier reached €1.1696, marking its strongest level in over a year.

The Pound (GBP) pushed higher on Thursday as markets took a more upbeat view of the UK’s political and economic backdrop.

Investor concerns over a drawn-out Labour leadership contest continued to fade, with Andy Burnham increasingly expected to replace Keir Starmer without a disruptive battle for the top job. Burnham has also attempted to reassure markets by pledging to stick with the government’s existing fiscal framework, while his keynote address on Monday seemed to be received positively by investors.

As a result, traders kept scaling back the political risk premium that had previously weighed on Sterling. GBP also benefited from evidence that some cost pressures in the UK economy may be beginning to ease. Mortgage rates have fallen in recent days, while diesel prices recorded their sharpest monthly decline on record in June.

Lower borrowing and fuel costs could ease pressure on households and businesses in the months ahead, helping to reinforce the improving tone around the Pound.

The Euro (EUR) remained on the back foot against the Pound on Thursday, with the single currency still reeling from the previous day’s inflation figures.

Wednesday’s Eurozone consumer price index showed price growth cooling at a faster pace than markets had anticipated. Headline inflation dropped from 3.2% to 2.8%, while core inflation also eased unexpectedly, falling from 2.6% to 2.4%.

The softer data prompted investors to rein in bets on further European Central Bank (ECB) interest rate hikes, leaving the Euro exposed through Thursday’s trade.

Near-Term GBP/EUR Forecast: PMI Releases and Central Bank Commentary in Focus

Looking ahead, Friday’s final PMI releases from the UK and the Eurozone could shape movement in the Pound Euro exchange rate. As both figures are expected to confirm that private sector activity remained in contraction, the pairing may be left trading without a strong directional bias.

The Pound could also take direction from a speech by Bank of England (BoE) Governor Andrew Bailey. Bailey has maintained a cautious stance recently, arguing that policymakers should wait for the economic fallout from the US-Iran conflict to become clearer before committing to any major policy moves.

GBP investors are therefore likely to listen closely for any fresh signals on the BoE’s policy path. However, Bailey may continue to avoid giving markets a clear steer.

Meanwhile, ECB President Christine Lagarde is also scheduled to speak. Should Lagarde sound more dovish in the wake of Wednesday’s softer inflation data, the Euro could remain under pressure.

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TAGS: Pound Euro Forecasts