Pound to Euro Nears Best Exchange Rate in Over Two Years

Modified: Tuesday, 20 October 2026 20:31 BST - Written by Minesh Chaudhari

STORY LINK Pound to Euro Nears Best Exchange Rate in Over Two Years

The Pound Euro (GBP/EUR) exchange rate moved higher on Tuesday after an unexpected drop in UK unemployment gave Sterling a boost.

At the time of writing, GBP/EUR was trading at €1.1896, marking a 0.3% gain for the session.

The Pound (GBP) gained ground early on Tuesday as the latest UK employment figures pointed to a stronger labour market than economists had anticipated.

Data from the Office for National Statistics (ONS) revealed that unemployment fell from 4.9% to 4.7% in the three months to August, reaching its lowest level in more than a year.

The unexpected improvement provided further evidence that the UK labour market remains resilient, despite earlier signs of slowing employment growth.

For the Bank of England (BoE), the figures strengthened the case for another interest rate increase in November.

Following the release, markets were pricing in a 95.5% probability of a rate hike next month, alongside expectations for three additional increases during 2027.

The prospect of tighter monetary policy helped Sterling strengthen against several major currencies, with GBP/EUR extending its recent advance towards the €1.1900 level.

The Euro (EUR), meanwhile, came under pressure after Germany's latest economic sentiment figures disappointed expectations.

The ZEW economic sentiment index fell from 34.7 in September to 28.1 in October, missing forecasts for a more modest decline to 30.

The deterioration suggested that confidence in the Eurozone's largest economy remains fragile, with businesses and investors facing continued uncertainty over the growth outlook.

Germany's weaker figures added to existing concerns surrounding the Eurozone economy.

Political and fiscal instability in France also continued to weigh on the single currency, with investors questioning whether the French government can secure sufficient parliamentary support for its proposed budget measures.

With economic confidence deteriorating in Germany and French fiscal concerns unresolved, the Euro struggled to attract fresh demand.

Near-Term GBP/EUR Forecast: UK Inflation Could Push Pound Above €1.19

Wednesday's UK consumer price index (CPI) release will provide the next major test for the Pound to Euro exchange rate.

Economists expect annual headline inflation to accelerate from 3.1% to 3.4% in September, while core inflation is forecast to increase from 2.6% to 2.8%.

Following Tuesday's stronger-than-expected employment figures, another rise in inflation could reinforce expectations that the Bank of England will raise interest rates in November.

A stronger-than-forecast reading could provide Sterling with enough momentum to challenge the €1.1900 level.

However, with markets already assigning a 95.5% probability to a November rate increase, much of the anticipated tightening may already be reflected in exchange rates.

A softer inflation reading could therefore trigger a more substantial reaction, particularly if investors begin questioning the need for additional BoE tightening beyond November.

Bank of England Governor Andrew Bailey is also scheduled to speak on Wednesday afternoon, with investors looking for further clues about the central bank's policy outlook.

For the Euro, attention will turn to comments from European Central Bank (ECB) President Christine Lagarde.

Nevertheless, developments in France may remain an important influence, with further political instability or renewed pressure on French government bonds potentially limiting any recovery in the single currency.

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TAGS: Pound Euro Forecasts