Pound-to-Euro Rate Nears €1.20 for First Time in 17 Months

Modified: Wednesday, 21 October 2026 21:31 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Rate Nears €1.20 for First Time in 17 Months

The Pound Euro (GBP/EUR) exchange rate climbed to a fresh 17-month high on Thursday, with stronger-than-expected UK inflation figures reinforcing expectations of further Bank of England (BoE) interest rate increases.

At the time of writing, GBP/EUR was trading at €1.1940, up approximately 0.3% on the day and at its strongest level since May 2025.

The Pound (GBP) extended its recent gains after September's UK inflation figures revealed that price pressures were proving more persistent than economists had anticipated.

Headline consumer price inflation accelerated from 3.1% to 3.5%, exceeding forecasts for a more modest increase to 3.4%.

Core inflation, which excludes volatile food and energy prices, also strengthened, rising from 2.6% to 2.8%.

The figures followed Tuesday's unexpectedly strong employment report, which showed UK unemployment falling from 4.9% to 4.7%.

Together, the releases strengthened expectations that the Bank of England will raise interest rates at its November meeting, with markets also considering the possibility of four increases over the coming year.

The prospect of higher borrowing costs helped Sterling extend its advance against the Euro, pushing GBP/EUR closer to the psychologically important €1.2000 level.

However, the Pound's gains were tempered by fresh concerns surrounding the UK's public finances.

Government borrowing in September exceeded expectations, adding to the fiscal challenges facing Chancellor John Healey ahead of next week's Autumn Budget.

Higher borrowing costs could further restrict the Treasury's room for manoeuvre, potentially limiting Sterling's ability to sustain its recent rally.

The Euro (EUR), meanwhile, remained under pressure as political unrest and mounting fiscal concerns continued to undermine confidence in the single currency.

Demonstrations and disorder across parts of Europe, particularly France and Italy, added to uncertainty surrounding the region's political outlook.

France's debt problems remained a particular concern, with investors questioning whether the government can secure parliamentary backing for measures intended to reduce its substantial budget deficit.

Pressure on French government bonds has also raised fears that financial instability could spread to other heavily indebted Eurozone economies.

The combination of political uncertainty and fiscal concerns left the Euro struggling to recover against an increasingly well-supported Pound.

Near-Term GBP/EUR Forecast: Could BoE Comments Push Sterling towards €1.20?

Looking ahead, comments from Bank of England Governor Andrew Bailey could provide the next significant catalyst for the Pound to Euro exchange rate.

Following this week's stronger employment and inflation figures, investors will be looking for confirmation that policymakers are preparing to raise interest rates in November.

A hawkish message from Bailey could reinforce expectations of further tightening and provide Sterling with additional support.

This could allow GBP/EUR to challenge the €1.1950 area, with the €1.2000 level becoming the next important psychological target.

However, the Pound could face some pressure from the Confederation of British Industry's (CBI) latest industrial orders and business confidence figures.

Further evidence of weakening manufacturing demand could raise concerns about the impact of elevated borrowing costs on the UK economy.

For the Euro, attention will turn to October's preliminary Eurozone consumer confidence figures.

Sentiment is expected to have deteriorated, and a weaker-than-forecast reading could add to concerns about household demand across the currency bloc.

Continued political uncertainty in France may also restrict any meaningful Euro recovery, leaving GBP/EUR sensitive to developments in European bond markets.

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TAGS: Pound Euro Forecasts