GBP/EUR exchange rate week review: pound tumbles against euro following soft labour market data
16/02/2026 to 20/02/2026: The pound hit its lowest level of the year against the euro after UK unemployment climbed to a five-year high, with Bank of England rate cut bets keeping sterling on the back foot despite a late-week recovery driven by strong retail sales and PMI data.
Monday
The pound euro (GBP/EUR) exchange rate traded sideways as investors prepared for a slew of influential economic data releases from the UK economy that could impact the pace of Bank of England (BoE) policy loosening.
The single currency traded without a clear direction following the release of Eurozone industrial production data that indicated factory output across the bloc fell sharply in December. While the print was marginally better than forecast, it still marked the weakest reading since April.
Tuesday
The pound tumbled to 1.1435 against the euro, hitting its lowest level of the year, after a soft set of labour market figures stoked BoE rate hike bets.
UK payrolls dropped by 11,000 in January, while unemployment increased to 5.2% in December – its highest level in five years across the three months to December.
The euro traded unevenly, softening after Germany’s ZEW economic sentiment index unexpectedly weakened. Losses for the safer single currency were limited by a cautious market mood, which lent support against the more risk-sensitive pound. Tentative optimism surrounding Russia-Ukraine peace negotiations in Geneva added to its recovery.
Wednesday
Having edged higher, after sidestepping a slowdown in headline UK inflation, the pound arrested its gains as investor expectations that the BoE will cut interest rates in March persisted.
The euro weakened as a lack of developments in Russia-Ukraine peace talks dampened investor sentiment. Reports suggesting the US is urging Ukraine to consider territorial concessions to Russia also applied pressure.
Thursday
The pound continued to be undermined by mounting expectations that the BoE will lower interest rates by 25bps at its upcoming policy meeting.
Political uncertainty also weighed amid speculation that a potential Labour defeat in the Gorton and Denton by-election could increase pressure on Prime Minister Keir Starmer’s leadership.
The euro traded without a clear direction following the release of the Eurozone’s latest consumer confidence reading. Although sentiment improved slightly this month, the figures fell short of market expectations, leaving the single currency lacking momentum.
Friday
Stronger-than-forecast UK retail sales data offered the pound some support after the print showed volumes rose 4.5% in January at the fastest annual pace in nearly four years. The figures indicated that consumers are becoming happier to spend after a weak end for the economy in 2025.
Encouraging PMI data added to pound tailwinds. British firms boosted output at the fastest pace in almost two years. S&P Global’s purchasing managers’ index increased to 53.9, its highest level since April 2024, up from 53.7 in January and above the 53.2 forecast.
The euro was bolstered by February PMIs that pointed to positive growth momentum for the bloc. The Eurozone PMI rose to 51.9 in February from 51.3 in January, hitting its highest level since November last year. While the manufacturing PMI surged to 50.8 from 49.5 in January, the services PMI improved only marginally to 51.8 from 51.6.
The pound euro exchange rate ended the week around 1.143.
Looking ahead
An absence of influential data from the UK economy leaves the German inflation print on Friday as the only release of note.