Pound-Euro Slides despite Firmer UK Inflation, GBP/EUR Tests 1.1650

Modified: Wednesday, 19 August 2026 22:06 BST - Written by James Fuller

STORY LINK Pound-Euro Slides despite Firmer UK Inflation, GBP/EUR Tests 1.1650

The Pound to Euro (GBP/EUR) exchange rate came under sustained pressure on Wednesday and fell towards the 1.1650 area despite a rise in UK headline inflation.

GBP/EUR traded around 1.1652 during the evening session, down approximately 0.36% on the day and at its weakest levels of August.

The decline has effectively brought the pair to ING's 1.1650 downside target.

Sterling received little lasting support from the inflation figures, while the Euro maintained a firm tone following stronger German sentiment data and continued expectations of tighter European Central Bank policy.

UK Inflation Rises to 2.9%

UK consumer-price inflation increased to 2.9% in July from 2.6% in June, matching consensus forecasts but coming in slightly above the Bank of England's 2.8% projection.

The increase was driven primarily by a 13% increase in the household energy price cap.

Core inflation was unchanged at 2.6%, compared with expectations for a slight decline to 2.5%.

Services inflation eased to 3.4%, offering some reassurance that domestically generated price pressures are not accelerating sharply.

ING had commented ahead of the release; “Next on the UK agenda this week will be tomorrow's July CPI, where a lower year-on-year services number would again slightly favour the position of the BoE doves.”

That broadly proved to be the case, with services inflation easing despite the increase in the headline rate.

The figures therefore did little to strengthen the argument for an immediate Bank of England rate hike.

ING's latest assessment is that the BoE's preferred core-services measure increased slightly to 3.8%, but not by enough to materially trouble policymakers.

The bank continues to expect the Bank of England to avoid further tightening.

Cooling Jobs Market Limits Sterling Support

Wednesday's inflation figures followed Tuesday's relatively soft labour-market report.

The UK unemployment rate was unchanged at 4.9% in the three months to June, compared with consensus forecasts for a slight decline to 4.8%.

Vacancies fell to 707,000 in the three months to July, their lowest level since 2021, while private-sector wage growth slowed to 2.8%.

ING commented; “The basic story here is that the jobs market is cool.”

It added that vacancies continue to decline and there is little evidence that wage growth is about to accelerate significantly.

The combination of cooling labour demand and relatively contained underlying inflation has strengthened the argument that the Bank of England can keep rates unchanged despite the temporary increase in headline CPI.

The Euro has also benefited from a more constructive Eurozone backdrop.

Germany's ZEW economic sentiment index climbed to 34.2 in August from 26.3 in July, comfortably above consensus forecasts of 30.0.

The current-conditions component also improved sharply to -61.1 from -77.6.

The survey suggested that stronger export orders, corporate earnings and government infrastructure spending are helping to improve confidence in Europe's largest economy.

The figures also reinforced expectations that the European Central Bank could raise interest rates again if economic activity remains resilient.

Energy prices remain a significant risk for the Eurozone, but the improving German data has provided the single currency with enough support to pressure GBP/EUR.

Near-Term GBP/EUR Forecast: 1.1650 Support under Pressure

GBP/EUR is now testing the 1.1650 area highlighted by ING as a potential downside target.

A sustained break below this level would weaken the short-term technical picture and expose the August low around 1.1648.

Further losses could then bring the 1.1600 area back into focus.

On the upside, Sterling would need to recover above 1.1700 to ease the immediate downward pressure.

The UK gilt market will also remain important, particularly if higher energy prices or fiscal concerns push long-term yields higher.

For now, the combination of a cooling labour market, contained underlying inflation and a firmer Euro leaves GBP/EUR vulnerable to further downside.

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TAGS: Pound Euro Forecasts