GBP/EUR exchange rate week review: pound rebounds versus euro following BoE’s hawkish rate cut
15/12/2025 to 19/12/2025: The pound recovered from midweek losses to finish the week stronger against the euro, buoyed by resilient UK data and a hawkish-leaning Bank of England rate cut, while weaker Eurozone PMIs and cautious ECB rhetoric weighed on the single currency.
Monday
The pound euro (GBP/EUR) exchange rate drifted lower ahead of a raft of key economic data releases from the UK economy – PMI readings, inflation, and retail sales – and the Bank of England’s (BoE) latest interest rate decision.
The euro remained steady as Eurozone industrial production rose from 0.2% to 0.8% in October, matching forecasts and easing worries about a recent manufacturing slowdown.
Tuesday
The pair rallied from a 13-day low as forecast-beating UK jobs data lifted the pound above the 1.14 level against the euro. Although the figures showed a unemployment rose to a four-year high and wage growth slowed, they also indicated some resilience and stickier-than-expected wage growth.
The UK currency drew additional support from the UK’s services PMI, which showed that activity picked up in December with the score rising from 51.3 to 52.1.
Meanwhile, the euro was undermined by weaker-than-expected PMI results that indicated a contraction in business activity in December.
Wednesday
The pound tumbled around half a percent against the euro after UK inflation data for November printed below forecasts, prompting investors to raise bets on the BoE reducing rates the following day.
Headline inflation cooled from 3.6% to 3.2%, exceeding the 3.5% forecast, while core inflation also surprised to the downside, slowing from 3.4% to 3.2%.
The euro initially softened, undermined by its inverse relationship with a firmer dollar, before rallying as the US currency gave up ground and investor attention turned to the European Central Bank’s (ECB) policy announcement.
Thursday
The pound euro rate jumped into the 1.14 mid-range following the BoE’s December policy meeting. Although policymakers voted for an expected rate cut and downgraded the central bank’s inflation outlook, its accompanying statement hinted that future decisions will become “a closer call”. This indicated a slower pace of rate reductions in 2026, bolstering the UK currency.
The euro drifted lower after the ECB announced its final interest rate decision of the year. Despite leaving rates unchanged and upgrading its growth forecast, President Christine Lagarde dampened single currency sentiment after saying that a “stronger euro could dampen inflation”.
Friday
The pound was dented by an unexpected fall in UK retail sales in the run-up to Christmas. Sales volumes dropped 0.1% month on month in November, as shoppers held back on Black Friday spending and budget uncertainty hit consumer confidence.
The euro was pressured after Germany’s consumer confidence index for January fell to its lowest level since April 2024.
The pound euro exchange rate ended the week around 1.141.
Looking ahead
UK GDP for the third quarter, slated for release on Monday, is the only notable data in the economic calendar ahead of the Christmas break. If, as expected, the figures show growth continues to stall, the pound could face headwinds.