British Pound weakens against Euro despite rising UK inflation

The British Pound has faced downward pressure against the Euro, with the GBP/EUR exchange rate testing the 1.1650 level. This decline occurred despite a rise in UK headline consumer-price inflation, which increased to 2.9% in July from 2.6% in June.

The headline increase was largely driven by a 13% rise in the household energy price cap. However, core inflation remained unchanged at 2.6%, and services inflation—a key metric for the Bank of England—eased to 3.4% from 3.6%. This cooling in services inflation has limited the potential for immediate interest rate hikes by UK policymakers.

Simultaneously, the Euro has maintained strength, supported by firm Eurozone headline inflation at 2.9% and positive German sentiment data. Market expectations regarding European Central Bank policy and elevated bond yields in both the UK and Germany continue to influence the currency pair's movement.