The pound to euro exchange rate is of great importance to many UK citizens see http://www.currencywatch.co.uk/pound-to-euro for details. 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.