Pound-to-Euro Rate Rises as BoE Rate Hike Bets Build

Modified: Wednesday, 2 September 2026 11:16 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Rate Rises as BoE Rate Hike Bets Build

The Pound Euro (GBP/EUR) exchange rate made modest gains on Tuesday, with higher oil prices and fresh Eurozone inflation data prompting markets to reassess the outlook for monetary policy.

At the time of writing, GBP/EUR was trading at €1.1675, having edged slightly higher over the course of the day.

The Euro (EUR) came under mild pressure on Tuesday following the release of the latest Eurozone consumer price index.

Headline inflation picked up as anticipated in August, climbing from 2.9% to 3.3%. However, core inflation surprised to the downside, easing from 2.5% to 2.4%.

The softer underlying inflation reading appeared to unsettle EUR traders, with the single currency edging lower against some of its peers as expectations for further European Central Bank (ECB) interest rate hikes slipped slightly.

The Pound (GBP), meanwhile, found some support on Tuesday as traders increased their bets on the Bank of England (BoE) raising interest rates later this year.

Fresh attacks involving the US and Iran sent oil prices sharply higher, prompting markets to reassess the inflation outlook.

UK government bond yields surged to their highest levels since 2008, while markets priced in around 32 basis points of BoE tightening by the end of the year. A November rate hike was seen as almost 70% likely, while the chances of another increase by February were put at roughly 80%.

The prospect of tighter monetary policy helped lend Sterling some strength, although gains were limited by concerns over rising government borrowing costs and the potential consequences for the UK economy.

Meanwhile, a cautious market backdrop also restricted GBP’s appeal, with the increasingly risk-sensitive Pound vulnerable to periods of heightened uncertainty.

Near-Term GBP/EUR Forecast: Limited Data Could Restrict Moves

Looking ahead, a quiet economic calendar in both the UK and Eurozone on Wednesday could leave the Pound Euro exchange rate lacking a clear catalyst, potentially keeping the pairing within a relatively narrow range.

Risk appetite may nevertheless shape GBP/EUR trading.

A deterioration in sentiment could weigh on the increasingly risk-sensitive Pound, while giving the safer Euro an advantage.

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TAGS: Pound Euro Forecasts