GBP/EUR exchange rate drops to lowest level in almost two and a half years in October
The pound euro exchange rate jumped above the 1.15 benchmark amid expectations that the Bank of England (BoE) will keep interest rates elevated for longer than most of its peers. Meanwhile, the euro was undermined by consumer price data, which showed inflation accelerated from 2% to 2.2% in September.
Having dropped into the 1.14 mid-range the following day, as pre-budget fiscal concerns mounted, the pound rose sharply above 1.15 on 6 October. The upward movement was triggered by the sudden resignation of France’s newly appointed Prime Minister, Sébastien Lecornu – prompting fresh political uncertainty that weighed on the euro.
The pound hit a three-week high in the 1.15 mid-range on 8 October after data showed German industrial production slumped 4.3% in August – a much deeper drop than the 1% contraction expected.
The pound briefly dipped into the 1.14 mid-range against the euro on 10 October after data showed UK wage growth fell to a four-year low in September.
Signs of labour market weakness and subsequent rate cut speculation caused the pound to tumble against the euro on 14 October. Meanwhile, the single currency was bolstered by improving German economic sentiment and a risk-off market mood.
The pound regained its footing on 16 October after UK GDP data for August showed a slight uptick in economic growth, dampening rate cut speculation. The euro was steadied by easing French political risk after reappointed Prime Minister Sébastien Lecornu survived two parliamentary confidence votes.
The pound consolidated in the 1.15 range the following day after BoE Chief Economist Huw Pill warned that inflation is proving far more persistent than the central bank anticipated and cautioned against cutting rates too soon.
The pound euro rate tumbled into the 1.14 mid-range on 22 October after a softer-than-expected UK inflation print for September led markets to ramp up BoE rate cut bets. Headline inflation stayed at 3.8%, instead of increasing to 4% as expected.
The pair extended its losses the next day as the pound struggled to recover from the inflation setback.
The pound plummeted to around 1.137 against the euro – its lowest level in more than two years – on 28 October as mounting concerns over the upcoming autumn budget dealt a chastening blow.
Reports pointed to a significant reduction in the Office for Budget Responsibility’s (OBR) productivity growth forecasts – a move that could result in a £20bn shortfall in public finances. The news indicated that Chancellor Rachel Reeves might need to introduce higher tax increases than previously expected.
Ongoing UK budget concerns stoked speculation that the BoE could cut interest rates again in 2025, causing the pound to extend its losses the following day – touching 29-month lows in the 1.13 mid-range.
The euro was subdued on 30 October, despite encouraging GDP figures and the European Central Bank’s (ECB) decision to leave interest rates unchanged. Preliminary GDP figures for the third quarter indicated that economic growth in the bloc exceeded expectations.
The pound was hit by headwinds from mounting UK fiscal challenges and ECB rate rhetoric on 31 October. Hawkish comments from ECB President Christine Lagarde following the central bank’s policy meeting were echoed by several ECB Governing Council members, who pointed to an improving outlook and further rate holds. Preliminary inflation data supported this hawkish stance, with headline inflation in the Eurozone printing at 2.1% in October, cooling from 2.2% the previous month.
The pound euro exchange rate ended the month at around 1.134.
GBPEUR: 3-Month Chart
Looking ahead
The BoE is expected to hold interest rates steady on 6 November, with investors betting the central bank is likely to make its next rate cut in February.
Influential economic data from the UK economy in November: Claimant Count Change (11 November, Employment Change (11 November), ILO Unemployment Rate (11 November), GDP (13 November), Consumer Price Index (19 November), Retail Sales (21 November), S&P Global Manufacturing PMI (21 November), S&P Global Services PMI (21 November).