GBP/EUR exchange rate touches seven-week high in May
The pound euro exchange rate rebounded off the 1.17 benchmark on 2 May after core inflation in the Eurozone rose to 2.7% from 2.4%, surpassing the expected 2.5%. This supported the single currency as investors scaled back bets on an ECB interest rate cut.
On 6 May, the pound briefly spiked above 1.18 against the euro before settling in the 1.17 mid-range. This was driven by news of a UK-India trade deal and hopes for a UK-EU agreement, along with a positive assessment of the government’s planning and infrastructure reforms.
The pound rose to a five-week high above 1.18 against the euro on 8 May after a hawkish Bank of England (BoE) rate cut. Two policymakers voted to keep rates unchanged, and the central bank only slightly lowered its inflation forecasts. Markets now anticipate two more cuts in 2025, one fewer than previously expected. The UK currency also gained from a new UK-US trade deal, which boosted confidence in the trade outlook compared to the EU.
Hawkish-leaning remarks from BoE Deputy Governor Clare Lombardelli, who advocated the case for cautious rate cuts, helped to lift the pound to within a whisker of 1.19 on 12 May.
Having dropped into the 1.18 mid-range, the pound was bolstered by an upbeat GDP print on 15 May. The preliminary figures showed the UK economy grew 0.7% in the first quarter, up from 0.1% in the previous three months and beating forecasts for a 0.6% expansion.
The pound briefly edged above the 1.19 benchmark the following day after the single currency was pressured by dovish signals from a European Central Bank (ECB) official.
The pound euro exchange rate initially strengthened on 21 May following the release of the UK’s CPI for April, which indicated an unexpectedly strong rise in inflation. However, the gains were curtailed as market analysts suggested that the increase was likely due to temporary factors and would not affect the BoE’s downward trajectory on interest rates. Consequently, the pound briefly dipped to around 1.182 against the euro.
The pound rose above 1.19 on 23 May, briefly touching a seven-week high against the euro, amid higher-than-expected British retail sales in April due to warm weather. Conversely, the euro weakened as Donald Trump threatened to impose a 50% tariff on all EU imports from 1 June, citing unfair trade practices. This move could impact Eurozone GDP and lead the ECB to cut interest rates more aggressively.
The pound fluctuated on 27 May as markets reacted to the IMF’s latest UK economic assessment, briefly hitting a seven-week high before retreating. The IMF slightly raised its 2025 growth forecast to 1.2% but cautioned about economic challenges and advised Chancellor Rachel Reeves to ease fiscal policies to prevent emergency spending cuts.
The pound reached a fresh multi-week high in the 1.19 mid-range on 29 May before plummeting almost 1%. Dovish BoE signals and the euro’s strong negative correlation with a downbeat dollar applied downward pressure.
The pound euro exchange rate ended the month at around 1.186.
GBPEUR: 3-Month Chart
Looking ahead
The BoE is expected to leave interest rates unchanged on 19 June following its decision to cut borrowing costs in May – a move that could lend the pound support.
Influential data from the UK economy in June: ILO Unemployment Rate (10 June), Average Earnings (10 June), Consumer Price Index (18 June), Retail Sales (20 June), S&P Global Composite PMI (23 June), GDP (27 June).
The ECB will almost certainly lower interest rates on 5 June, with policymakers expected to wait until July to pause for the first time in a year, despite a weak economy at risk from the US-led trade war.