Pound to Euro Forecast: Labour Defeat Weighs on GBP Sterling

– Written by


Frank Davies

STORY LINK Pound to Euro Forecast: Labour Defeat Weighs on GBP Sterling

The Pound to Euro exchange rate (GBP/EUR) is trading at 1.14162 (-0.13%), slipping further below the 1.1500 resistance area after the Greens secured victory in the Gorton and Denton by-election, dealing a symbolic blow to the Labour government.

Although UK financial conditions remain supportive, with the FTSE 100 at record highs and 10-year gilt yields near 14-month lows, political uncertainty is preventing Sterling from capitalising on favourable market sentiment.

GBP/EUR Forecasts: Green By-Election Victory Weighs on Sterling

The Pound to Euro (GBP/EUR) exchange rate again failed to sustain momentum above 1.1485 earlier in the week and has since retreated toward the 1.14 handle following confirmation of Labour’s defeat.

Markets had partially priced in a setback, but the scale of the loss has revived questions over Prime Minister Starmer’s authority and the stability of the government heading into May’s local elections.

Credit Agricole had noted ahead of the vote that bookmakers already favoured the Greens, suggesting some downside risk was embedded in Sterling pricing. However, MUFG had warned that “a defeat for Labour has the potential to trigger at least a temporary sell-off for the pound,” a dynamic now visible in early trading.

Short-term volatility is likely to persist as investors reassess political risk premia.

While politics dominate the near-term narrative, Bank of England expectations remain crucial for the broader trajectory.

HSBC commented; “The key consideration for the GBP will be whether the BoE signals openness to further rate cuts during the remainder of 2026.”

Citi FX continues to expect a more aggressive easing cycle, forecasting three further rate cuts and a terminal rate of 3%, below current market pricing.

If markets move to price a faster pace of easing, yield differentials would increasingly favour the Euro, potentially pushing GBP/EUR toward the 1.1360 area and beyond.

Despite the political shock, underlying financial conditions remain benign. The FTSE 100 has extended gains to fresh record highs and gilt yields have drifted lower, indicating no immediate stress in UK assets.

That stability may limit the scope for an aggressive Sterling sell-off unless political instability intensifies.

For now, GBP/EUR remains capped below 1.1500, with political developments and evolving Bank of England guidance set to determine whether the recent retreat deepens or stabilises.

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