– Written by
Tim Boyer
STORY LINK British Pound to Euro Forecast: GBP Gains as BoE Rate Cut Bets Recede
The Pound to Euro exchange rate (GBP/EUR) has surged to fresh five-month highs after Sterling broke a key technical barrier, reinforcing bullish momentum as traders scale back expectations for near-term Bank of England rate cuts.
GBP/EUR Forecasts: Fresh 5-Month Highs to Hold?
The Pound to Euro (GBP/EUR) exchange rate has maintained a strong tone in global markets with a fresh 5-month high just above the 1.1600 level on Wednesday before a slight correction.
The Pound has gained further momentum after breaking above the 200-day moving average just above 1.1560 on Tuesday. According to MUFG this is the first time this has happened since April 2025 and could generate further Pound buying if the break is sustained..
The final reading for the UK PMI services-sector index was revised slightly lower to 54.0 from the flash reading of 54.3, although this was confirmed at a 5-month high.
Tim Moore, Economics Director at S&P Global Market Intelligence, commented; “The latest survey revealed an encouraging start to 2026 for the UK service sector, following a sluggish end to last year.”
There was a further net decline in employment, but costs increased at the fastest rate for seven months while output charges increased at the fastest rate for five months.
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The evidence of increased cost pressures in the manufacturing and services sectors will cause some concerns within the Bank of England and potentially lead to some relatively hawkish rhetoric at this Thursday’s policy meeting.
MUFG commented; “Stronger growth momentum has encouraged market participants to push back the timing of the next BoE rate cut. The UK rate market currently expects the BoE to leave rates on hold until the April or June MPC meetings. A development that is helping to provide more support for the pound in the near-term.”
The bank is still not convinced that the Pound can hold gains; “However, the combination of labour market weakness and slowing inflation in the coming months should provide more encouragement for the BoE to resume rate cuts this year while the ECB leaves rates on hold. At the same time, UK political risks could increase around the local elections scheduled to be held in May.”
It added; “As a result, we are not convinced that the pound’s current upward momentum against the euro will be sustained beyond Q1.”
As far as the Euro-Zone is concerned, the final PMI services index was revised slightly lower to 51.6 from the flash reading of 51.9.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; “The growth trajectory can be described as decent, but the situation is still not comfortable.
The headline Euro-Zone inflation rate declined to 1.7% for January from a revised 1.9% previously and in line with consensus forecasts while the core rate declined marginally to 2.2% from 2.3%.
There are strong expectations that the ECB will hold the deposit rate at 2.00% this week with the bank’s rhetoric watched closely.
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TAGS: Pound Euro Forecasts
