GBP/EUR exchange rate sinks to two-year low in July
The pound euro exchange rate slumped by more than 1% into the 1.15 mid-range on 2 July after a Bank of England (BoE) official called for stronger monetary easing due to the UK’s worsening economic outlook. The UK currency’s losses accelerated amid reports suggesting Chancellor Rachel Reeves could face the chop following Labour’s U-turn on the welfare reform bill.
The pound pared some of its losses the following day, edging above 1.16, after Prime Minister Keir Starmer publicly backed Chancellor Rachel Reeves. A better-than-expected final UK services provided additional tailwinds.
Following a choppy spell that saw the pound euro rate pulled back and forth by EU-US trade deal reservations, UK deficit concerns, and downbeat German trade data, the pound plummeted to around 1.153 on 11 July. Data showing UK GDP shrank for a second consecutive month in May applied downward pressure, raising concerns that the country could be on the verge of recession.
The pound fell to within a whisker of the 1.15 level on 14 July after BoE governor Andrew Bailey suggested that an interest rate cut would be necessary if the UK labour market weakens further. The euro also faltered following Donald Trump’s announcement of a fresh round of US tariff threats.
The pound euro exchange rate briefly spiked into the 1.15 mid-range on 16 July. This followed the UK’s inflation print for June, which showed prices unexpectedly rose, prompting investors to scale back BoE rate cut bets. The Office for National Statistics said the consumer prices index rose by 3.6% outstripping economists and BoE forecasts for it to remain the same as May’s reading of 3.4%.
The pound climbed to 1.157 against the euro on 17 July, despite economic figures showing unemployment rising and wage growth slowing in May. Investors preferred to focus on revised payroll numbers, which were adjusted from –109,000 to –25,000, causing investors to scale back bets on a BoE rate cut. Meanwhile, the euro was undermined by mounting concerns that the EU and the US might fail to agree on a trade deal before the 1 August deadline – an outcome that threatened the Eurozone economy and would force the European Central Bank (ECB) to implement additional support.
The pound euro rate slid to around 1.153 the following day as growing concerns over UK debt prompted investors to speculate on the extent to which the UK government needs to hike taxes again in the Autumn.
The pair almost dipped below 1.15 on 22 July after public borrowing figures intensified tax hike concerns. The move lower came despite the Office for Budget Responsibility (OBR) reporting borrowing matched March forecasts and a positive outlook.
The pound firmed into the 1.15 mid-range on 23 July amid euro weakness ahead of the ECB’s impending interest rate decision. This was compounded by the Eurozone’s consumer confidence index for July, which reported that morale remains pessimistic.
The euro rebounded the following day after the ECB left interest rates unchanged and central bank President Christine Lagarde delivered relatively hawkish rhetoric during her post-meeting address. Meanwhile, the pound was pressured by data showing an unexpected deceleration in UK service sector activity and an increase in job losses across the industry, fuelling BoE rate cut speculation.
The pound euro rate sank into the 1.14 mid-range on 25 July amid hopes that an EU-US trade deal could soon be finalised, boosting the single currency. Meanwhile, the pound lost ground in the wake of a disappointing UK retail sales print.
The pair initially struck a new two-year low, a fraction above 1.14, on 28 July following the announcement of a long-awaited EU-US trade agreement. However, the uplift soon faded as investors digested its contents and were left underwhelmed, prompting the pound to rally against a faltering euro.
The pound broke through the 1.16 threshold against the euro on 30 July, reflecting continued weakness in the single currency. GDP figures indicated that Eurozone growth was nearly stagnant in the second quarter, with expansion limited to 0.1%. While this figure slightly exceeded forecasts, it increased the pressure on the ECB to provide additional support for the region’s fragile economy.
The pound euro exchange rate ended the month on the back foot, retreating into the 1.15 mid-range as policy setbacks and weak economic data dimmed the UK’s growth prospects for the remainder of the year. The single currency received some welcome support after Germany posted strong inflation numbers and the Eurozone reported lower unemployment.
GBPEUR: 3-Month Chart
Looking ahead
UK interest rates currently stand at 4.25% and will be reviewed at the BoE’s next policy meeting on 7 August, when many economists expect the rate will be cut. Although a hotter-than-expected inflation print for June has made that less straightforward.
Influential data from the UK economy in August: ILO Unemployment Rate (12 August), GDP (14 August), Consumer Price Index (20 August), S&P Global Composite PMI (21 August), Retail Sales (22 August).