Pound-to-Euro Forecast: GBP Supported Short-Term, Medium-Term Risks Remain

– Written by


Ben Hughes

STORY LINK Pound-to-Euro Forecast: GBP Supported Short-Term, Medium-Term Risks Remain

The Pound to Euro exchange rate (GBP/EUR) touched eight-week highs above 1.1465 in thin pre-Christmas trading, supported by short covering amid reduced liquidity.

While Sterling has shown resilience, the move appears driven more by positioning than improving fundamentals.

Beyond year-end, banks still expect Euro strength and further BoE easing to weigh on the Pound into 2026.

GBP/EUR Forecasts: 8-Week Highs

The Pound has managed to hold its position in global markets and secured a limited net advance against the buoyant Euro.

In Europe on Tuesday, the Pound to Euro (GBP/EUR) touched an 8-week high just above 1.1465 in thin pre-Christmas trading.

The Pound tends to be vulnerable in global markets towards year-end but, given the substantial short Sterling position in global markets, there has been speculation that the currency can gain from short covering, especially if the currency can secure further traction.

Trading conditions will be very thin in the short term, maintaining the potential for position adjustment to have a significant impact.

Beyond the year-end period, MUFG maintains a bearish stance on the Pound with a retreat to 1.13 by the end of March 2026.

UoB expects GBP/EUR can hold its position at 1.1450 in the first quarter of next year.

MUFG expects strong Euro support; “central bank demand for the euro is set to pick up and will act as an important source of EUR appreciation.”

The bank also sees scope for stronger official buying of Euro-Zone bonds. It noted; “Sovereign bond supplies will pick up in Europe and of course negative yields are now a thing of the past. EU bond supply will also increase further. The EUR 90bn loan deal agreed for Ukraine last week will help improve liquidity and draw central bank demand over time.”

Nordea commented on the outlook for ECB rates; “We remain happy with our current baseline forecast of unchanged rates until the second half of 2027, where we see two 25bp rate hikes from the ECB.

It did add; “The risks of further rate cuts has receded further, though the chance of another rate cut has not vanished altogether.”

In contrast, markets remain confident that the Bank of England will cut interest rates further during 2026 which would narrow the Pound’s yield advantage.

The latest British Chambers of Commerce (BCC) survey reported that 54% of companies considered that the UK Brexit deal with the EU was not helping them, an increase from 41% in the same survey last year.

BCC’s director of international trade Steve Lynch commented; “With a budget that failed to deliver meaningful growth or trade support, getting the EU reset right is now a strategic necessity, not a political choice.”

He added; “Trade is the fastest route to growth, yet firms tell us it is becoming harder, not easier, to sell into our largest market.”

There will be political pressure to strengthen ties with Europe which could have some impact on Pound sentiment

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TAGS: Pound Euro Forecasts