July 17, 2025 – Written by David Woodsmith
STORY LINK Pound to Euro Forecast: Sell GBP/EUR Rallies says This Bank
The Pound to Euro exchange rate (GBP/EUR) spiked higher in response to the UK inflation data, but failed to hold the gains and traded around 1.1525, not far above the 3-month lows of 1.1500 posted on Tuesday.
Traders still expect a rate cut in August and are braced for a weak jobs report on Thursday while confidence in the UK bond market remains notably fragile.
ING commented; “A soft jobs print tomorrow should send EUR/GBP back above 0.870.” (GBP/EUR) sliding below 1.1500)
Goldman Sachs expects longer-term losses, but would prefer to sell GBP/EUR rallies rather than sell now; “we are more inclined to wait for better entry points before engaging with Sterling shorts.”
The headline UK inflation rate increased to 3.6% for June compared with consensus forecasts of an unchanged rate of 3.4% and the highest annual rate since January 2024.
From a global perspective, the inflation rate was also the highest in the G7 area.
Core inflation also increased to 3.7% from 3.5% and compared with expectations of no change.
The goods inflation rate increased to 2.4% from 2.0% with the services-sector rate unchanged at 4.7%.
There was upward pressure on transport prices for the month while food price inflation increased to 4.5%, the strongest reading since early 2024.
Paul Dales, chief UK economist at Capital Economics commented; “The UK does still have an inflation problem.”
Looking at trends in online data, Michael Metcalfe of State Street Markets is more confident over the outlook; “online prices suggest inflation pressures have already begun to subside in the first two weeks of July, which warns against reading too much into summer inflation strength seen so far.”
ING noted the persistence in services-sector inflation; “this latest data appears to set the bar fairly high for faster rate cuts. The fact that headline inflation is edging closer to 4% doesn’t help. BoE Chief Economist Huw Pill has recently spoken of internal research, which shows that inflation has a habit of becoming more entrenched when CPI reaches these levels.”
ING also noted that the position could still change quickly; “Thursday’s payroll data is absolutely key. If May’s shockingly bad figures aren’t revised up and/or if June’s numbers are as bad, that could be a catalyst for the Bank to rethink its current cautious approach to rate cuts. For now, though, we expect “gradual” cuts in August and November.”
According to Deutsche Bank’s chief UK economist Sanjay Raja; “Is an August rate cut in jeopardy? No, we don’t think so. There’s enough of a slowdown in GDP and the labour market to warrant a ‘gradual and careful’ easing of monetary policy.
He added; “But the onus now rests on the labour market to shape how far and how fast the MPC can cut this year and next.”
Reaction in the bond market will be monitored closely, especially as there has been upward pressure on long-term yields.
The 10-year yield increased to 4.68% in immediate reaction to the data before a retreat to 4.66%.
James Flintoft of AJ Bell commented; “The persistence of inflation above 3pc, well ahead of the Bank of England’s 2pc target, further highlights the risk that higher inflation is here to stay, and parts of the gilt market need to adjust.”
Higher yields could, in theory, underpin the Pound, but there will also be concerns that higher yields will be seen as a symptom of global markets losing confidence in UK bonds and undermine the Pound.
Like this piece? Please share with your friends and colleagues:
International Money Transfer? Ask our resident FX expert a money transfer question or try John’s new, free, no-obligation personal service! ,where he helps every step of the way,
ensuring you get the best exchange rates on your currency requirements.
TAGS: Pound Euro Forecasts
