GBP/EUR exchange rate week review: pound trims losses versus euro following bond yield turbulence
01/09/2025 to 05/09/2025: The pound seesawed against the euro amid surging UK bond yields and mixed data on both sides.
Monday
The pound euro (GBP/EUR) exchange rate traded without a clear direction through the 1.15 mid-range.
The UK currency was pressured slightly by a jump in UK bond yields, causing concerns over the government’s upcoming autumn budget to resurface. The yield movement was triggered by Kier Starmer’s Downing Street reshuffle, with the subsequent increase in government borrowing costs expected to hinder Chancellor Rachel Reeves’ fiscal flexibility.
The single currency was subdued despite the Eurozone’s latest manufacturing PMI, which was revised higher. The August index was altered from 50.5 to 50.7, indicating the fastest pace of factory growth in the region in over three years.
Tuesday
The pound tumbled below 1.15 versus the euro after UK gilt yields rocketed to their highest level since 1998, prompting investor jitters ahead of Rachel Reeves’s autumn budget. Rising government borrowing costs highlighted concerns about Britain’s fiscal outlook and added pressure on Reeves to find public sector funding solutions.
The safer euro initially firmed as market sentiment soured, and Eurozone inflation data ticked higher. However, the single currency’s negative correlation with a rising dollar limited its upside potential.
Wednesday
The pound ticked higher against the euro as long-term UK gilt yields pulled back from their highest levels in 27 years.
The UK’s latest services PMI for August also supported the UK currency, with the final reading revised up to its strongest level in 16 months.
The single currency was directionless amid mixed economic indicators from the bloc. August's services sector activity was revised down, while producer price inflation exceeded market expectations.
Thursday
The pound edged marginally higher against the euro as UK government bond yields continued to retreat. The pull back in the bond markets reassured investors in the UK currency.
The single currency softened as the latest Eurozone retail sales figures revealed a steeper-than-expected drop in July. However, risk aversion across global markets helped keep it afloat against the risk-sensitive pound.
Friday
The pound traded sideways against the euro following a mixed UK retail sales print. July’s figures surpassed expectations at 0.6%, but June’s growth was readjusted from 0.9% to 0.3%.
The single currency was hit by headwinds after German factory orders plunged 2.9% in July, casting a cloud over the health of the bloc’s largest economy.
The pound euro exchange rate ended the week at around €1.152.
Looking ahead
The European Central Bank (ECB) is widely expected to leave interest rates untouched on Thursday as a steady economic outlook and near-target inflation put the central bank in a comfortable position – a move that’s likely to support the euro.