GBP/EUR Hits 1-Year High: Is Now the Time to Buy Euros?

Market overview: Sterling pushes through key resistance

GBP/EUR has climbed to its highest level in more than a year, with a decisive break above a long-standing resistance area helping to unlock further sterling demand.

The move followed an extended test of the 1.1600 to 1.1630 zone, where layers of sell orders had previously capped gains. Once that area gave way, momentum accelerated, leaving a move towards 1.1700 looking increasingly likely.

From a technical perspective, the break is significant. If former resistance now becomes support, GBP/EUR may be able to establish itself above 1.1600 and trade in a higher range after spending much of the past year contained.

GBP: Rate support keeps the pound well bid

Sterling has been supported by the UK’s yield advantage, with British bond yields holding up better than eurozone equivalents.

Bank of England Governor Andrew Bailey added to that support by pushing back against the idea of near-term rate cuts, saying such discussions were “off the table at the moment”. Speaking in Sintra, Bailey warned that inflationary pressures could still emerge as a delayed response to geopolitical tensions in the Middle East.

Markets interpreted the comments as relatively hawkish, helping UK yields retain their advantage over German and wider European bonds. That yield gap remains an important driver for GBP, as higher returns tend to attract capital inflows.

EUR: Softer inflation weighs on the single currency

The euro came under pressure after eurozone inflation printed below expectations, raising questions over whether the European Central Bank needed to tighten policy as aggressively as it did.

Headline inflation fell to 2.8% in June from 3.2% in May, below expectations for 3.0%. Core inflation also eased, slipping from 2.6% to 2.4%, against forecasts for 2.5%.

The data suggests earlier concerns over another energy-driven inflation surge may have been overstated. It also increases the risk that the ECB’s latest rate hike could be viewed as a policy misstep if price pressures continue to soften. As rate hike expectations are scaled back, the euro remains vulnerable.

Looking ahead

• GBP/EUR is now eyeing a potential test of 1.1700.

• The 1.1600 to 1.1630 area is the key support zone to watch.

• Further UK yield outperformance would likely keep sterling supported.

• Softer eurozone inflation may continue to weigh on ECB rate expectations.

• Any shift in tone from the Bank of England or ECB could quickly influence near-term direction.