British Pound to Euro Forecast: Has GBP’s Rally Run Out of Steam?

– Written by


Frank Davies

STORY LINK British Pound to Euro Forecast: Has GBP’s Rally Run Out of Steam?

The Pound to Euro exchange rate (GBP/EUR) slid to two-week lows as a sharp deterioration in risk appetite and rising geopolitical tensions overshadowed UK economic data.

GBP/EUR Forecast: Slide to 2-Week Lows

The Pound to Euro (GBP/EUR) exchange rate dipped sharply to 2-week lows near 1.1450 on Tuesday before a limited recovery to 1.1480.

Risk appetite dipped sharply with losses across all major bourses. Geo-political fears undermined confidence with President Trump’s continued push for control of Greenland.

Market confidence in the US-US bilateral relationship was also shaken by Trump’s attack on the UK Chagos Island deal.

The Pound is liable to be dominated by geo-political concerns in the short term unless the data is notably different from expectations. If risk appetite deteriorates further, the Pound will find it very difficult to make headway.

According to SocGen’s Kit Juckes; “it feels as if we’ve seen sterling rally against the euro just about as far as it’s going to manage to and it’s going to run out of some momentum.”

Danske Bank expects a retreat to 1.1240 by the end of 2026 while HSBC expects no change from current levels.

The latest UK unemployment rate data met market expectations with an unchanged rate at a 4-year high of 5.1%.

There was a reported 43,000 decline in payrolls for December after a revised 33,000 decline for November. There was, however, a small increase in vacancies, breaking a 3-year downturn.

There was a small decline in the rate of wage increases with the headline rate at 4.7% from 4.8%.

PwC UK senior economist Jake Finney commented; “The labour market is weakening as elevated policy uncertainty and weaker hiring start to bite.”

There was no shift in Bank of England expectations with markets not expecting a February cut.

Finney added that the figures were “unlikely to move the dial on the decision over a rate cut next month, and a cut in March appeared more likely.”

The latest UK inflation data will be released on Wednesday with expectations that the headline and core rate will edge higher to 3.3% from 3.2%.

There will need to be a notable miss on expectations to have an impact on interest rate expectations. The UK data flow will be watched closely with the government borrowing data on Thursday and PMI business confidence data due on Friday.

According to SocGen’s Juckes; “The idea that the UK economy is doing well, I think isn’t particularly priced by anybody, but certainly people are going to be nervously looking at some of the upcoming data.”

Barclays commented; “With the risk premium almost fully unwound and data cross-currents yet to be resolved, we remain neutral on the Pound.”

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TAGS: Pound Euro Forecasts