Pound to Euro Holds Ground after UK Inflation Slowdown

Modified: Wednesday, 20 May 2026 20:01 BST - Written by Frank Davies

STORY LINK Pound to Euro Holds Ground after UK Inflation Slowdown

The Pound Euro (GBP/EUR) exchange rate remained within a tight range on Wednesday, as market participants largely looked past a sharper-than-anticipated drop in UK inflation.

At the time of writing, GBP/EUR is hovering around €1.1542, showing little to no change from the start of the session.

The Pound (GBP) traded in a narrow range on Wednesday, as the UK’s latest inflation data failed to spark much movement in Sterling.

April’s consumer price index showed price pressures cooling by more than economists had anticipated. Headline inflation fell from 3.3% to 2.8%, undershooting forecasts of 3%, while core inflation eased from 3.1% to 2.5%.

However, the weaker reading did little to shift Bank of England (BoE) interest rate expectations.

Economists still expect inflation to edge higher again through 2026, with rising energy costs linked to the war in Iran likely to filter through supply chains. As a result, markets continued to price in two BoE rate hikes before the end of the year, leaving the Pound largely unmoved.

The Euro (EUR) traded without a clear direction on Wednesday, as conflicting drivers left the common currency rangebound.

Germany’s latest producer price index appeared to offer EUR some support, after factory gate inflation rose sharply. Markets took the figures as a sign that higher business costs in the Eurozone’s largest economy could eventually feed through into consumer prices across the bloc.

However, the Euro was unable to make any meaningful gains.

EUR remained pressured by its strong negative correlation with the US Dollar (USD), as ongoing strength in the ‘Greenback’ kept the single currency on the defensive.

Near-Term GBP/EUR Forecast: PMIs Take Centre Stage

The focus now shifts to Thursday, which will see the release of preliminary PMI figures for both the UK and the Eurozone in May.

The Eurozone's data comes out first, and a predicted contraction in private sector activity could put pressure on EUR.

The UK PMIs will follow shortly. While an anticipated drop in activity could weaken GBP, the Pound might perform better than the Euro if the British services sector manages to show continued growth this month.

To wrap up the session, the Eurozone’s latest consumer confidence index could hurt the common currency if sentiment is shown to have worsened in May.

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TAGS: Pound Euro Forecasts