The exchange rate has climbed to €1.112, the highest pound to euro levels seen all month.

Sterling has been buoyed by encouraging data out of the UK this week.

Inflation figures beat expectations and unemployment is low, both factors which have positively influenced the exchange rate.

The data has also placed increased pressure on the Bank of England to raise interest rates.

Pound euro exchange rate

Pound euro exchange rate: Sterling is performing well ahead of a BoE interest rate update

GBP/EUR stabilised ahead of the Bank of England (BoE) interest rate decision

Laura Parsons

Though it’s widely speculated today’s policy meeting will result in keeping the historic low rate on hold, some analysts believe the vote might swing in favour of a rise.

Any hawkish comments from key policymakers will likely benefit the pound and in turn weaken the euro.

TorFX currency analyst Laura Parsons said: “After surging in reaction to the UK’s climbing inflation figure earlier in the week, GBP/EUR briefly gave up some of its gains as average earnings increased by less-than-forecast.

“GBP/EUR stabilised ahead of the all-important Bank of England (BoE) interest rate decision however and is currently trading in the region of €1.112.

Pound euro exchange rateBLOOMBERG

Pound euro exchange rate: Sterling is buying €1.112

“A hawkish BoE would send sterling higher still.”

The pound tends to strengthen when the chance of an interest rate increase is higher.

Bank of England chief economist Andy Haldane is thought to be one MPC member who could join Michael Saunders and Ian McCafferty in calling for rates to rise.

Some experts think that Governor Mark Carney may also shock markets after last month warning that markets are underestimating the likelihood of a rate rise.

Pound euro exchange rate

Pound euro exchange rate: Mark Carney will give an update from the BoE on interest rates

If the Bank of England chief votes for a rise, the pound would likely surge against both the euro and the US dollar.

The chance of a rate hike is thought to have jumped after inflation hit 2.9 per cent in August – well above the Bank’s target of two per cent.

Raising interest rates can help push inflation down – taking pressure off British households.

Unemployment has also reached a 42-year low, suggesting the economy remains strong – and wage rises may soon start to pick up.

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