Pound-to-Euro Breaks €1.20

Modified: Thursday, 5 November 2026 20:31 BST - Written by Frank Davies

STORY LINK Pound-to-Euro Breaks €1.20

The Pound to Euro (GBP/EUR) exchange rate climbed above €1.20 on Thursday after the Bank of England (BoE) raised interest rates and signalled that further increases could follow.

At the time of writing, GBP/EUR was trading at around €1.2008, close to its recent 18-month high and approximately 0.2% higher than at the start of the European session.

The Pound (GBP) strengthened after the Bank of England delivered a more hawkish interest rate decision than markets had anticipated.

As widely expected, the Monetary Policy Committee (MPC) raised Bank Rate by 25 basis points, taking borrowing costs from 3.75% to 4%.

However, the voting split provided a surprise.

All nine policymakers supported tighter monetary policy, with eight backing the quarter-point increase and one favouring a larger 50-basis-point hike.

The unanimous support for higher rates suggested that concerns over persistent inflation remain widespread across the committee.

The BoE's accompanying statement also indicated that further tightening could be necessary if price pressures fail to ease sufficiently.

Governor Andrew Bailey reinforced this message, highlighting the upside risks to inflation and signalling that policymakers remain prepared to act.

The more hawkish tone encouraged investors to reassess the outlook for UK interest rates, providing fresh support for Sterling.

With markets already anticipating Thursday's quarter-point increase, the prospect of additional tightening proved more important for the Pound than the rate decision itself.

GBP/EUR consequently pushed above the psychologically important €1.2000 level, extending its recent advance against the single currency.

The Euro (EUR), meanwhile, came under modest pressure as a recovery in the US Dollar (USD) weighed on demand for the common currency.

The two currencies' typically negative correlation meant that renewed Dollar strength created an additional headwind for EUR.

However, the Euro avoided more substantial losses thanks to some encouraging economic releases.

Germany's latest factory orders figures showed a 4.4% rebound in September, suggesting that demand for manufactured goods recovered following earlier weakness.

Although the increase fell short of market expectations, it nevertheless provided some reassurance about the outlook for the Eurozone's largest economy.

Eurozone producer price inflation also accelerated in September, offering further evidence that price pressures remain elevated across the currency bloc.

The figures helped maintain expectations that the European Central Bank (ECB) could raise interest rates again, limiting the Euro's losses against Sterling.

Near-Term GBP/EUR Forecast: Can Sterling Sustain Break Above €1.20?

The Pound to Euro exchange rate could extend its recent gains on Friday if incoming Eurozone economic data disappoints expectations.

Germany's latest industrial production figures will be released first, with economists forecasting that output stagnated in September.

A weaker-than-expected reading could reinforce concerns about the health of Germany's manufacturing sector, potentially weighing on the Euro.

The Eurozone's latest retail sales figures will also attract attention.

Sales are expected to have contracted in September, suggesting that elevated living costs and borrowing rates continue to weigh on household spending.

Confirmation of weaker consumer demand could add to concerns about the currency bloc's growth outlook, potentially limiting support for the single currency.

For Sterling, comments from Bank of England Chief Economist Huw Pill could provide further direction following Thursday's hawkish policy announcement.

Investors will be looking for indications of whether Pill believes additional interest rate increases are necessary to bring inflation under control.

A hawkish message could reinforce expectations of further tightening and help the Pound consolidate its move above €1.2000.

However, any suggestion that the BoE may proceed more cautiously after Thursday's increase could encourage some profit-taking.

The €1.2000 level now represents an important near-term reference point for GBP/EUR.

If Sterling can sustain its advance above this threshold, the pairing could attract further buying interest.

Conversely, a retreat below €1.2000 would suggest that the initial response to the BoE announcement is fading, potentially bringing the €1.1950 area back into focus.

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TAGS: Pound Euro Forecasts