GBP/EUR exchange rate falls to an eight-week low in September
On 2 September, the pound fell below 1.15 against the euro after UK gilt yields hit a 25-year high, raising concerns over Britain’s fiscal outlook and increasing pressure on Rachel Reeves ahead of the autumn budget.
The pound retraced some of its losses the next day as long-term gilt yields retreated from their elevated levels. The UK’s services PMI for August also bolstered the UK currency, with the final reading revised up to its strongest level in 16 months.
Having traded sideways through the lower reaches of the 1.15 range, the pound euro exchange rate firmed on 9 September. The single currency slipped after French Prime Minister François Bayrou resigned following his parliamentary confidence vote defeat. His departure caused concerns over France’s political stability to resurface, undermining investor confidence in the single currency.
The euro firmed on 11 September after the European Central Bank (ECB) left rates unchanged as expected and raised its growth forecast for 2025. President Christine Lagarde also stated that risks to the Eurozone outlook are now considered “more evenly balanced”.
After traversing the 1.15 mid-range, the pound fell to within a fraction of the 1.15 level against the euro on 16 September. Economic data indicating a mild cooling in Britain’s labour market failed to alter expectations that the Bank of England (BoE) would leave interest rates unchanged.
Meanwhile, the euro rose sharply after Germany’s ZEW economic sentiment index unexpectedly improved.
The pound dipped below 1.14 on 18 September. Despite leaving interest rates unchanged, the BoE kept a cut in November on the table.
The pound euro exchange rate extended its losses the following day. Upbeat UK retail sales figures were overshadowed by UK government borrowing in August, which hit its highest level for the month in five years.
The pound wavered on 23 September following the publication of disappointing UK PMIs, which showed a sharper-than-expected decline in activity.
The pound dropped to an eight-week low around 1.143 against the euro on 25 September after a closely watched survey showed a persistent contraction in retail activity, adding to concerns about the UK economy.
The UK currency strengthened the next day, climbing into the 1.14 mid-range before arresting its gains following dovish comments from BoE policymaker Swati Dhingra.
After being boosted by remarks from BoE Deputy Governor Dave Ramsden on 29 September, who suggested UK inflation may continue rising, the pound was flat the following day despite an upward revision to GDP growth in Q2.
The pound euro exchange rate ended the month at around 1.145.
GBPEUR: 3-Month Chart
Looking ahead
Influential data from the UK economy in October: Claimant Count Change (14 October), ILO Unemployment Rate (14 October), Consumer Price Index (22 October), Retail Sales (24 October), S&P Global Composite PMI (24 October).
The next ECB policy announcement will be delivered on 30 October, with the central bank not expected to reduce rates further. It will continue to follow a data-dependent, meeting-by-meeting approach to determining the appropriate monetary policy path.