Pound to Euro Nears Best Exchange Rate in 17 Months

Modified: Tuesday, 3 November 2026 20:31 BST - Written by James Fuller

STORY LINK Pound to Euro Nears Best Exchange Rate in 17 Months

The Pound Euro (GBP/EUR) exchange rate edged higher on Tuesday after the UK and EU reached an agreement to ease post-Brexit restrictions on food and agricultural trade.

At the time of writing, GBP/EUR was trading at around €1.1989, up marginally on the day and remaining close to the psychologically important €1.2000 level.

The Pound (GBP) found modest support after London and Brussels reached an agreement aimed at reducing checks on food and animal products moving between the UK and European Union.

The deal is expected to benefit British food exporters by removing some of the administrative barriers introduced following Brexit.

Reducing these restrictions could lower costs for businesses and make it easier for agricultural producers to trade with European markets.

The agreement also comes ahead of the planned UK-EU reset summit on 20 November, raising hopes that further progress could be made towards improving economic relations between the two sides.

For Sterling investors, closer trading ties with the EU could offer longer-term benefits for the UK economy, particularly if reduced barriers encourage investment and support export growth.

However, the announcement failed to generate a sustained rally in the Pound.

Sterling's gains were restrained by a renewed increase in UK government borrowing costs, reversing some of the decline in gilt yields seen since last week's Autumn Budget.

The latest rise in yields followed another sharp increase in global oil prices after reports that the US had carried out strikes on Iran's Qeshm Island on Monday.

Higher energy prices have revived concerns about inflation, potentially increasing pressure on the Bank of England (BoE) to maintain a restrictive monetary policy stance.

While expectations of higher interest rates can support Sterling, rising government borrowing costs also present a challenge for the UK's public finances, limiting the Pound's appeal.

The Euro (EUR), meanwhile, struggled to establish a clear direction on Tuesday as a lack of significant Eurozone economic releases left investors without a fresh domestic catalyst.

Movements in the US Dollar (USD) provided little guidance, with the 'Greenback' fluctuating throughout the session.

The Euro's typically negative correlation with the Dollar therefore failed to provide a consistent source of support.

Uncertainty across wider financial markets also contributed to subdued trading, with investors reluctant to take significant positions ahead of Wednesday's Eurozone inflation figures.

The upcoming data could provide an important indication of whether persistent price pressures will encourage the European Central Bank (ECB) to raise interest rates again before the end of the year.

Near-Term GBP/EUR Forecast: Eurozone Inflation Could Test €1.20

The Pound to Euro exchange rate could experience increased volatility on Wednesday as investors assess the latest Eurozone consumer price index (CPI).

Preliminary figures for October are expected to show annual inflation accelerating from 3.8% to 4%.

A stronger-than-expected reading could reinforce expectations that the European Central Bank will deliver another interest rate increase in December, potentially providing support for the single currency.

This could make it more difficult for GBP/EUR to establish a sustained move above €1.2000.

However, a softer inflation reading could reduce expectations for further ECB tightening and allow Sterling to extend its recent gains.

Before the inflation release, investors will also assess the final October services purchasing managers' index (PMI) figures from the UK and Eurozone.

The preliminary surveys suggested that activity across the Eurozone's services sector slowed, while UK services growth accelerated.

Confirmation of these contrasting trends could provide additional support for the Pound, particularly if the figures reinforce expectations that the British economy is outperforming the wider Eurozone.

For GBP/EUR, the €1.2000 level remains the immediate upside target, with a sustained break potentially encouraging further Sterling buying.

Conversely, stronger Eurozone inflation or disappointing UK activity figures could prompt a retreat towards €1.1950.

With the Bank of England's latest interest rate decision also approaching, Sterling may remain sensitive to shifting expectations surrounding the outlook for UK monetary policy.

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TAGS: Pound Euro Forecasts