The euro has been losing ground against the British pound recently, with the pair briefly dipping below the 0.8550 level during the European morning session on Thursday, June 26, hitting a one-week low of 0.8525. This downward move is primarily driven by a stronger pound, as traders closely watch for comments from Bank of England Governor Andrew Bailey in hopes of gaining insights into the future direction of monetary policy.

Over the past few weeks, the pound has posted solid gains, particularly against the US dollar. On June 26, GBP/USD climbed to 1.3751, marking a daily increase of 0.45%. On a monthly basis, the pound is up more than 1.8%. Analysts attribute this strength to several encouraging economic indicators out of the UK, notably a surprise rise in core inflation to its highest level in a year, which has tempered expectations of an imminent rate cut by the central bank.

Inflation isn’t the only factor on investors’ radar—geopolitical tensions are also contributing to the uncertainty. Bailey recently noted that rising tensions in the Middle East have fueled higher oil prices, adding to inflationary pressures and complicating rate-setting decisions. While he emphasized that the central bank won’t overreact to short-term global developments, he acknowledged that the current climate injects further unpredictability into the outlook for interest rates.

Megan Greene, a member of the Bank of England’s Monetary Policy Committee, has also raised concerns about the risk of “stagflation”—a troubling combination of stagnant economic growth and stubborn inflation. She suggested that the Bank should maintain a cautious and gradual approach to policy changes to avoid further economic disruptions.

As it stands, markets expect the Bank of England to hold rates at 4.25% for some time, at least until there’s clear evidence that inflation is easing. Meanwhile, Morgan Stanley has warned that a continued spike in oil prices due to instability in the Middle East could weigh on not just the UK economy, but global equity markets as well. Such a scenario may reignite inflation concerns and push back the timeline for any rate cuts.

Looking at the euro-to-pound exchange rate for the year so far, the average level for 2025 is around 0.8421, with a high of 0.8738 and a low of 0.8242. Current levels sit slightly below the yearly midpoint, suggesting investors remain cautiously optimistic about the UK’s economic resilience and the Bank’s stance on future policy shifts.

All eyes are now on Governor Bailey as he prepares to speak—his assessment of the economy and inflation trends could set the tone for short-term currency movements. With geopolitical risks and inflation pressures still in play, GBP/EUR could remain sensitive to macroeconomic developments. For investors monitoring the forex market, now is the time to stay alert to central bank signals and adjust strategies with care.