British Pound to Euro Rate Slips to 1.186 Ahead of ECB

June 4, 2025 - Written by Tim Boyer

STORY LINK British Pound to Euro Rate Slips to 1.186 Ahead of ECB

The Pound to Euro exchange rate (GBP/EUR) has advanced further to near 1.1890, helped by a reluctance to hold long Euro positions into Thursday’s ECB policy meeting.

Short-term yields favour the Pound, especially with the Bank of England not expected to cut rates this month. Markets are still wary over longer-term UK vulnerability with potential capital flows into the Euro-zone area also underpinning the Euro.

There is a notable risk that long-term flows will support the Euro which will make it difficult for GBP/EUR to break resistance.

MUFG expects GBP/EUR will be blocked close to 1.19, but added; “We do however, see greater risks than a month ago that the pound could outperform our forecasts given the signs in May that the UK economy could prove stronger than expected and hence the MPC cuts by less.”

Overnight, the US Administration stated that the UK would not be subjected to the 50% tariffs on steel and aluminium which came in today. In view of the fledgling bilateral trade deal, tariffs would be held at 25%.

This will provide limited Pound relief, although wider trade uncertainty persists.

The UK PMI services-sector index was revised up to 50.9 from the flash reading of 50.2 and above the 27-month low of 49.0 for April.


Business confidence improved to a 7-month high and, although there was further strong upward pressure on costs, the rate of increase in selling prices retreated to a 7-month low.

Tim Moore, Economics Director at S&P Global Market Intelligence, commented; "The service sector regained its poise in May as receding concerns about US tariffs, recovering global financial markets and greater confidence among clients all helped to support output growth.”

There are still reservations over the underlying economic dynamics, especially with fiscal pressures amid demands for increased military and welfare spending.

Chancellor Reeves has again reiterated that there will be no change in fiscal rules, but the 30-year bond yield is at 5.40% which will continue to put upward pressure on debt-servicing costs and underlying fiscal fears will persist.

HSBC noted UK vulnerability; “Longer-dated government bond yields have also continued to rise amid global uncertainty and a large risk premium associated with fiscal policy. That raises the risk of lower fiscal headroom in the autumn and a ‘doom loop’ for fiscal policy.”

Rabobank is acutely aware of the pressure, but notes the global dimension; “It’s not just the UK that’s true for of course. Vast sums need to flow to armed forces globally.”

The Euro-Zone PMI services-sector index was revised to 49.7 from the flash figure of 48.9, but was still the lowest reading for 6 months while the composite output index held just above the 50.0 level.


Selling prices increased at the slowest rate for seven months which will be a relief for the ECB and this follows the decline in inflation to 1.9% from 2.2%.

According to MUFG; “the report should give the ECB more confidence that inflation will remain close to their target going forward alongside recent evidence of slowing wage growth in the euro-zone.

There are strong expectations that the ECB will cut interest rates on Thursday.

MUFG expects two further cuts later in the year which would take the deposit rate down to 1.50%.

There have been reports that the German government is planning a EUR46bn package to boost investment.

MUFG commented; “The euro has derived support from reports that the German government is planning additional fiscal stimulus alongside stepping up defence and public infrastructure spending.”

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TAGS: Pound Euro Forecasts