Pound-to-Euro Slides as UK CPI Fuels BoE Cut Bets

– Written by


David Woodsmith

STORY LINK Pound-to-Euro Slides as UK CPI Fuels BoE Cut Bets

The Pound to Euro exchange rate (GBP/EUR) slid on Wednesday as a sharper-than-expected slowdown in UK inflation weighed heavily on Sterling.

At the time of writing, GBP/EUR was trading around €1.1368, down close to 0.5% on the session.

The Pound (GBP) retreated sharply after the UK’s latest consumer price index undershot forecasts, prompting a rapid reassessment of interest rate expectations.

Headline inflation cooled from 3.6% in October to 3.2% in November, well below expectations for a more modest decline to 3.5%. Core inflation also softened, slipping from 3.4% to 3.2% instead of holding steady as economists had anticipated.

The weaker-than-expected inflation data reinforced market conviction that the Bank of England (BoE) will deliver a 25bps rate cut at Thursday’s policy meeting. It also strengthened bets that further easing could follow in the first half of 2026, amplifying pressure on the Pound.

The Euro (EUR) advanced against a weakening Pound but otherwise struggled to find clear direction after underwhelming data from Germany.

The latest German business climate survey showed a mild deterioration in December, with the index edging down from 88 to 87.6 rather than improving to 88.2 as forecast.

While the miss failed to exert significant downward pressure on the single currency, it also did little to inspire fresh demand, leaving the Euro drifting as investors searched for a clearer catalyst.

Pound to Euro Outlook: Policy Divergence to Pressure GBP/EUR?

Attention now turns to Thursday’s Bank of England policy decision, which is set to be the key driver for Sterling.

Although a rate cut is widely expected and largely priced in, the tone of the BoE’s guidance will be crucial. A distinctly dovish stance — signalling scope for multiple rate cuts in 2026 if inflation continues to cool — could leave the Pound vulnerable to further losses.

At the same time, the Euro may find support from the European Central Bank’s own policy announcement. Unlike the BoE, the ECB is expected to keep interest rates unchanged and reiterate that borrowing costs are already close to neutral.

This divergence in policy outlooks between the ECB and BoE could tilt the balance further in favour of the Euro, adding to downside pressure on the GBP/EUR exchange rat

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TAGS: Pound Euro Forecasts