May 8, 2025 - Written by Ben Hughes
STORY LINK Pound Sterling to Euro Forecast: 1.149 in 9-12 Months say Rabobank
The Pound Sterling is expected to underperform the Euro over the coming year, forecasting a steady climb in EUR/GBP to 0.87 on a 9-12 month timeframe, reversing much of sterling’s two-year outperformance.
This equates to a Pound-to-Euro exchange rate of 1.1494 over this timeframe.
“In contrast to GBP’s performance in 2023 and 2024, when it was the second-best performing G10 currency for two years in a row, we expect GBP to lag the EUR this year,” says Jane Foley, Senior FX Strategist at Rabobank.
“We forecast a move to EUR/GBP0.87 on a 9-to-12-month view.”
While recent political upheaval has dented Labour’s local support, Foley notes that sterling has been largely unfazed, suggesting markets still see PM Starmer’s mandate as intact. The real risk, she argues, lies in whether the UK economy can meet muted growth expectations in the face of structural fiscal constraints.
“If growth in the UK fails to meet the OBR’s forecasts, it will become more difficult for the Chancellor to hit her fiscal rules without further tax hikes,” Foley warns.
By contrast, optimism around Germany’s fiscal stimulus and broader Eurozone investment momentum continues to support the euro, setting the stage for relative underperformance in GBP.
“The anticipation that growth in Germany would be boosted by a huge lift in spending… has been widely considered a game changer,” she notes.
Recent pro-trade developments, including a long-awaited UK–India deal and prospects for a tariff resolution with the US, offer limited relief.
Still, Foley believes they are insufficient to restore GBP’s prior outperformance.
“Even though EUR/GBP has moved away from its April highs, we don’t expect the exchange rate to recapture the downtrend of the past two years,” she adds.
On monetary policy, the Bank of England is expected to cut rates this week, with Rabobank projecting a terminal rate of 3.75% by year-end, down from the current 4.5%.
However, that path could steepen if inflation surprises to the downside.
“A soft April CPI inflation print could push us to factor in an additional move,” says Foley.
Rabobank sees the British Pound caught between stagnant domestic growth, constrained fiscal flexibility, and a more dynamic euro area outlook, leaving EUR/GBP biased to the upside throughout the remainder of 2025.
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TAGS: Pound Euro Forecasts