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The Pound to Euro exchange rate (GBP/EUR) looks to be establishing a floor under a recent run of declines, aided by a string of stronger-than-expected domestic data prints.

Pound Sterling rose against the Euro, Dollar and a host of other currencies following the midweek release of inflation figures that roundly beat consensus expectations.

The data comes a day after the ONS revealed stronger-than-expected wage numbers amidst a tight labour market and suggests expectations at the Bank of England for a rapid fall in inflation over the coming months might prove too optimistic.

GBP/EUR rallied a third of a per cent to 1.1350 on the morning of April 19 after investors digested news that headline CPI remained in double digits at 10.1%, defying the consensus for a fall to 9.8%.

"GBP has continued to climb higher this morning after inflation numbers came in higher than market expectations," says Thanim Islam, Head of FX Analysis at Equals Money.

Core services inflation, a key metric for Bank of England policymakers, remains stubbornly high at 6.4% year-on-year and cement expectations for another 25 basis point hike in May.

Markets have moved to price a further rate hike at some point over the coming months, suggesting the peak in Bank Rate is higher than markets might have been expecting.

GBP/EUR has come under pressure over recent days as investors bet the European Central Bank (ECB) has more to offer by way of rate hikes.

But the incoming data will bolster the GBP side of the equation as it suggests the Bank of England can keep up and ensure that the peak in UK rates will rest higher than the peak in Eurozone rates.

"The likely hike by the BoE will help provide GBP with support over the coming weeks. The possibility of a 50bp hike by the ECB (mentioned by uber-dove Philip Lane) will also limit GBP strength versus EUR although technically EUR/GBP is beginning to look like a move lower is plausible," says Derek Halpenny, Head of Research for Global Markets EMEA at MUFG.

Above: GBP/EUR at 15-minute intervals showing the market reaction to Wednesday's inflation figures.

The Bank of England has consistently forecast a rapid decline in inflation starting in 2023 that would leave the headline rate at, or below, the 2.0% target by 2024.

Indeed, the February Monetary Policy Report had inflation back at 3.0% in the first quarter of 2024 and 1.0% in the first quarter of 2025.

"Recent commentary from the Bank of England suggested that inflation will drop by the summer, thus alluding to the idea that the Bank of England will pause in their rate hike cycle in May. But with wages and inflation continuing to climb, this now seems unlikely with the case now being for the Bank needing to continue their rate hike cycle," says Islam.