What Factors Affect The Pound To Euro Exchange Rate? The pound to euro exchange rate is of great importance to many UK citizens. As such, it is very important that we all understand exchange rates and what affects them. So, what does affect exchange rates? The first thing is inflation. Inflation is a general increase in prices and a subsequent fall in the purchasing value of money. If inflation is higher in the UK than in Europe, then UK products will become more expensive quicker than other countries. This means that the value will generally decrease. Something else that will affect exchanges rates are interest rates. The higher the interest rate is, the more ordinary people can earn on things like savings. This means that when the British interest rate is higher than that of the Euro the British pound is more in demand, and thus the value will generally increase. The Pound to Euro exchange rate can also be affected by things like government intervention, government debt, ongoing trades and the relative strength of other economies. As such, while inflation and interest rates will generally affect the exchange rate as described above, it will not always be the case.