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Stronger UK retail sales and improving business activity support the pound, but GBP/EUR must break 1.1760 to revive July’s rally. The Pound to Euro exchange rate recovered on Friday after suffering three consecutive daily declines earlier in the week.

GBP/EUR traded at 1.1718 late on Friday, up 0.14% on the day but below the previous week’s close of 1.1763.

Sterling reached a July high of 1.1827 on July 15 before retreating as softer UK inflation encouraged some investors to take profits and the Euro received support from improving Eurozone economic data.

Despite the setback, GBP/EUR remains around 0.9% above the July opening level near 1.1610 and comfortably above the June close at 1.1610.

The pullback has also stopped close to 1.1700, suggesting buyers remain willing to defend the exchange rate above the former July consolidation zone.

Image: GBP/EUR chart showing July rally to 1.1827 and pullback towards 1.1700 The technical outlook is therefore constructive but no longer decisively bullish.

GBP/EUR has formed resistance between 1.1760 and 1.1780, an area containing several recent daily closes. A recovery above this zone would improve the prospect of another challenge to 1.1800 and the July high at 1.1827.

Initial support is located around 1.1700, followed by the July 14 low and earlier cluster of closes around 1.1725.

A sustained break below 1.1700 would expose the June high at 1.1623 and the July opening area between 1.1600 and 1.1610.

UK Economy Ends the Week on a Stronger Footing Friday’s UK data offered some encouragement after employment and inflation figures had raised questions over the strength of the economy earlier in the week.

The Office for National Statistics reported that retail sales volumes increased 1.0% in June, defying expectations for a 0.3% decline.

Sales were also 4.2% higher than a year earlier, with warm weather, promotions and stronger online demand supporting spending.

Non-store retail sales rose 4.4% during the month, while the proportion of sales made online reached its highest level since April 2021.

The figures followed a 1.2% monthly increase in May and meant retail sales expanded 0.6% during the second quarter.

UK business activity also strengthened during July.

The flash composite purchasing managers’ index rose to 52.1, its highest level since February and above the 50 threshold separating expansion from contraction.

Services activity benefited from hospitality, domestic tourism and improved consumer confidence, while business cost pressures showed signs of easing.

The combination of stronger retail spending and renewed private-sector growth provides a better starting point for the new government and should reduce immediate concern over a sharp economic slowdown.

However, the improvement may prove vulnerable if higher oil and gas prices squeeze household incomes during the second half of the year.

Softer Inflation Limits the Pound’s Recovery Sterling’s response to Friday’s data was positive but limited because the latest inflation report has reduced the urgency for further Bank of England tightening.

The UK consumer price index increased 2.6% in the year to June, down from 2.8% in May and below the Bank of England’s previous projections.

Monthly inflation was just 0.1%, while CPIH inflation declined from 3.0% to 2.8%.

The figures followed evidence that private-sector wage growth has slowed and vacancies have fallen to 712,000.

Together, these reports suggest that underlying domestic inflation pressures are easing, even though the renewed increase in energy prices threatens to push headline inflation higher later this year.

The Bank of England will announce its latest interest-rate decision next week.

Policymakers are widely expected to leave Bank Rate unchanged at 3.75%, but markets will focus on the vote split and any guidance concerning the remainder of the year.

A cautious statement that emphasises weaker wage growth and lower June inflation could weigh on the Pound, particularly if policymakers push back against expectations for further rate increases.

Pound Sterling would receive stronger support if the Bank concentrates on the inflation risks created by rising energy costs and signals that another increase remains possible.

For GBP/EUR, the decision will be important because the Pound’s interest-rate advantage over the Euro remains one of its main sources of support.

ECB Leaves the Door Open to Higher Rates The European Central Bank left its three principal interest rates unchanged on Thursday, keeping the deposit rate at 2.25%.

In its latest monetary-policy decision, the ECB warned that the full inflationary consequences of the energy shock had yet to emerge.

The central bank maintained a data-dependent, meeting-by-meeting approach and said it would monitor the duration of the shock and the risk of indirect or second-round effects.

That kept the prospect of another increase in September alive.

Money markets continue to see a strong chance of two additional ECB increases before the end of the year, although weak growth could restrict how far policymakers are willing to tighten.

The economic picture improved on Friday as the Eurozone composite PMI rose from 50.0 to 51.9 in July.

The reading was well above expectations for 50.3 and signalled the strongest expansion in five months.

New orders returned to growth, while the survey was consistent with quarterly economic growth of approximately 0.3%.

An ECB survey published on Friday nevertheless showed economists expect Eurozone growth of only 0.6% during 2026, down from an earlier estimate of 1.0%.

The same survey placed average inflation at 2.7% this year and 2.2% in 2027.

The Euro therefore benefits from the possibility of further ECB tightening, but the outlook is constrained by weak underlying growth and the risk that higher energy costs damage the region’s manufacturing economy.

What’s the Forecast for the Pound versus the Euro? The broader Pound-to-Euro exchange rate trend remains positive, but the failure above 1.1800 and three consecutive daily declines indicate that the July rally has entered a consolidation phase.

Friday’s rebound from 1.1700 is technically encouraging and suggests the correction has not yet developed into a more significant reversal.

The central forecast is for GBP/EUR to remain within a 1.1680–1.1780 range ahead of the Bank of England decision.

A break above the cluster of recent closes around 1.1760–1.1780 would suggest buyers are regaining control and expose 1.1800, followed by the July high at 1.1827.

A close above 1.1827 would confirm a fresh breakout and bring 1.1900 into consideration.

The downside risk would increase if GBP/EUR closes below 1.1700.

That would indicate the recent rebound has failed and expose 1.1620–1.1630, where the June high and former resistance are located. The July opening level near 1.1610 would provide additional support.

Stronger UK activity data and the Pound’s existing interest-rate advantage favour eventual recovery, but the Euro has gained support from a more hawkish ECB outlook and a surprisingly strong July PMI.

The Bank of England will therefore determine whether GBP/EUR can return towards 1.1800 or whether the correction extends towards the former breakout area above 1.1600.

The Pound to Euro (GBP/EUR) exchange rate climbed to a 13-month high last week as speculation over the UK’s next Chancellor boosted Sterling, although the pairing struggled to hold its strongest levels.

At the time of writing, GBP/EUR was trading at €1.1761, up around 0.2% on the week.

Latest — Exchange Rates:
Pound to Euro (GBP/EUR): 1.176261 (-0.11%)
Pound to Dollar (GBP/USD): 1.345377 (-0.17%)
Euro to Dollar (EUR/USD): 1.143775 (-0.06%)

DAILY RECAP:

The Pound (GBP) traded in a narrow range at the beginning of the week, with the absence of notable UK economic releases leaving Sterling without a clear direction.

Remarks from Bank of England (BoE) Governor Andrew Bailey added further pressure after he highlighted the UK's persistent weak growth, dampening confidence in the currency.

Sterling then climbed sharply in the middle of the week as attention turned to the race for Chancellor under incoming Prime Minister Andy Burnham.

Markets reacted positively after Shabana Mahmood replaced Ed Miliband as the leading candidate, with Mahmood viewed as the more fiscally prudent option.

Even so, the Pound was unable to hold on to those gains despite figures showing the UK economy returned to growth with a 0.1% expansion in May.

With GBP/EUR hitting a 13-month high, traders chose to lock in profits, causing the Pound to retreat.

Meanwhile, the Euro (EUR) drew some support on Monday amid bets on further interest rate hikes from the European Central Bank (ECB) following the latest rise in energy prices.

EUR remained supported on Tuesday, thanks to its strong inverse trading relationship with the US Dollar (USD), as the latter currency faced pressure.

An unexpected contraction in Eurozone industrial production, published on Wednesday, left the Euro exposed to losses against the Pound.

However, the single currency was able to recoup a large portion of these losses through the latter part of the week, mostly due to a sharp retreat in Sterling.

Near-Term GBP/EUR Forecast: High-Impact Events to Drive Volatility? Looking forward, the initial focus for GBP investors is the UK’s latest employment figures due on Tuesday.

If the report suggests the labour market remains resilient, with unemployment holding steady and wage growth remaining firm, the Pound could strengthen.

Wednesday's UK consumer price index may then weigh on Sterling if it indicates that headline inflation cooled in June.

The week concludes with June's retail sales figures and the preliminary July PMIs on Friday. Weaker consumer spending alongside a further contraction in the services sector could leave the Pound under pressure heading into the weekend.

As for the Euro, Germany’s ZEW economic sentiment index for July could support EUR on Tuesday, if it shows an improvement this month as expected.

The European Central Bank’s latest interest rate decision on Thursday could drive volatility, with the single currency potentially firming if the bank indicates that further rate hikes are likely.

Finally, the Euro could soften on Friday if the Eurozone’s latest PMIs report weak activity in July.

Summary:

The GBP/EUR pair surged to a 52-week high of 1.171, gaining 1.3% over the month and over 2% year-to-date A restrictive 5.25% UK interest rate, sticky domestic service inflation, and political stability are driving the pound's strong outperformance Forecasts diverge on further gains, and investors should watch the BoE's July 30 decision and ECB's September meeting as key near-term catalysts. The GBP/EUR currency pair has reached a new 52-week high of 1.171. This follows a period of notable strengthening, with the pound increasing by 1.3% in the past month and by 0.3% over the last five trading days. Year-to-date, the pair has seen gains exceeding 2%.

Observers of foreign exchange markets will recognize that such shifts rarely occur in isolation. A combination of policy divergences, economic data, and sentiment adjustments appears to be at work.

The Interest Rate Story Still Matters Most Several factors are contributing to the sterling’s strength. Differences in monetary policy between the UK and the eurozone are a primary driver. The Bank of England recently maintained its Bank Rate at 3.75%, with a split vote indicating some members favored an increase.

In contrast, the European Central Bank raised its deposit rate to 2.25% following an uptick in eurozone inflation. Despite the ECB’s tightening, the UK’s higher interest rates continue to provide support for the pound.

Just a week before that, the European Central Bank had increased its deposit rate to 2.25%. This was their first increase since 2023. It happened after inflation in the eurozone jumped to 3.2% in May, largely due to an energy price surge caused by events in the Middle East. Even though the ECB is tightening its policy, the interest rate difference still gives the British pound a significant advantage, and this higher return continues to support the currency.

At the same time, political factors have unexpectedly come into play. The market’s worries about the upcoming UK political leadership changes have really calmed down. Financial firms seem reassured by the clear promises from the main political candidates to stick to current government borrowing limits. This stable political outlook is a stark contrast to the local budget disputes and economic slowdowns that are quietly affecting the major economies in the eurozone.

Key Risks to Watch The most important thing to look at next is the BoE’s decision on July 30th. Most people expect them to hold rates again, but if some members dissent and push for a hike like before, it could boost the pound even more. If the BoE keeps its firm stance during its upcoming policy review, the interest rate gap will definitely continue.

Investors should also consider UK economic growth figures. A sharper-than-expected slowdown could weaken the currency’s advantage. For those with euro exposure, the current levels present an opportunity, but potential exists for a return to the year’s mid-range.

Broader global economic indicators and changes in market sentiment may also indirectly affect these currency movements. It is advisable to monitor evolving economic data rather than assume a continuous upward trend.

Broader global developments, including US economic data and shifts in risk sentiment, may also influence cross rates indirectly. Overall, participants would benefit from staying attuned to evolving indicators rather than assuming a unidirectional trend.

What has driven GBP/EUR to 52-week highs?

A persistent UK-Eurozone interest rate gap and fading UK political risk are combining to lift sterling.

What should investors watch next?

Key events to watch in the near term are the Bank of England’s July 30 decision and the ECB’s September meeting.

How has the domestic British political landscape helped support institutional investor confidence in sterling this summer?

A stable political outlook and commitments to fiscal responsibility have helped bolster confidence among institutional investors in the pound.