EL7.AI
ForexMedium•20 October 2026•
4 min read

Euro falls 0.38% against sterling as markets price in 95% chance of UK rate rise

Key Facts

1The euro fell 0.38% against sterling during the session, according to FXStreet.
2FXStreet estimated the market-implied probability of a UK interest rate rise at about 95%.
3Annual wage growth was 3.7% for both regular pay and total pay including bonuses.
4Payroll employment fell by 37,000 people, or 0.1%, over the quarter.
5Vacancies fell by 21,000, or 2.9%, to 691,000 compared with the previous quarter.

The euro fell 0.38% against sterling during trading on 20 October 2026, as markets priced in a high probability of a UK interest rate increase following the release of labour market data. FXStreet reported that the European currency traded near 0.8395 pounds per euro at the time it published its session coverage. That put the exchange rate at levels last seen in May 2025, according to the website. The source estimated the probability of the Bank of England raising interest rates at its next meeting at about 95%, based on implied market pricing. The currency moves followed a UK release that combined lower unemployment and wage growth above expectations in a Reuters poll with a quarterly decline in payroll employment.

According to the Office for National Statistics, the UK unemployment rate stood at 4.7% in June to August 2026. The employment rate for working-age people was 75.3% over the same period, while the economic inactivity rate fell to 20.9%. Payroll employment declined by 37,000 people, equivalent to 0.1%, compared with March to May. By contrast, joint preliminary estimates from the ONS and HM Revenue and Customs pointed to a monthly increase of 13,000 employees, or 0.04%, in September compared with August. The number of people claiming unemployment benefits rose in September on both a monthly and annual basis to about 1.701 million, according to the ONS labour market release.

On wages, the ONS said average regular pay growth, which excludes bonuses, was 3.7% year on year in June to August 2026. Economists polled by Reuters had expected a weaker increase of 3.6% for this measure. Average total pay, which includes bonuses, recorded the same annual growth rate as regular pay over the period covered by the release. The ONS said the increase was "3.7% for both regular pay, excluding bonuses, and total pay, including bonuses". By sector, annual regular pay growth was 6.3% in the public sector, compared with 3.0% in the private sector, according to the average weekly earnings bulletin, with faster growth in the public sector over the same months.

On labour demand, the number of job vacancies fell by 21,000 in July to September 2026 compared with April to June. The quarterly decline was 2.9%, bringing total vacancies to 691,000, according to the ONS. On an annual basis, vacancies fell by 37,000, or 5.1%, compared with the corresponding period a year earlier. There were 2.4 unemployed people per vacancy in June to August, according to the UK jobs and vacancies release. Explaining some companies' reluctance to hire, the ONS cited responses to its vacancy survey indicating that higher labour costs may prevent smaller businesses from taking on employees.

On monetary policy, the Bank of England had held its benchmark interest rate at 3.75% in its September 2026 decision, the last decision before the market move. The Monetary Policy Committee voted 6–3 to hold rates, according to the decision summary and meeting minutes published by the bank. The bank said in that release that the continuing conflict in the Middle East had contributed to further increases in the prices of crude oil and refined energy products. Against the backdrop of economic activity, ONS data showed monthly gross domestic product grew 0.1% in August 2026 compared with July. In the three months to August, real GDP grew 0.7% compared with the previous three months, the period from March to May.

At the time of publication, the next release on the UK calendar was September consumer price inflation data on 21 October 2026. The ONS announcement published on the government website identified that date as the confirmed date for the next release. That is followed by the Bank of England's Monetary Policy Committee meeting on 5 November, according to the bank's official calendar for 2026. That date includes the announcement of the interest rate decision and publication of the monetary policy summary and meeting minutes, alongside the November Monetary Policy Report. The ONS scheduled the next UK labour market data release for 17 November 2026, after the bank's meeting scheduled for the start of the same month.