Pound to Euro Week Ahead Forecast: 1.182 Today, 1.2 by 2026

May 11, 2025 - Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: 1.182 Today, 1.2 by 2026

Foreign exchange analysts at Credit Agricole consider the Pound Sterling to be still undervalued and expect the Pound to Euro exchange rate (GBP/EUR) to gain to 1.2050 at the end of this year.

RBC Capital Markets (RBC), however, forecasts that the Pound to Euro (GBP/EUR) exchange rate will decline to 1.1630 at the end of this year with a further slide to 1.11 at the end of next year amid net capital inflows into the Euro area.

GBP/EUR secured a net gain to 5-week highs at 1.1820 during the week before settling around 1.18 amid positive UK trade developments and a relatively hawkish Bank of England (BoE) policy decision.

The Bank of England (BoE) cut interest rates by 25 basis points to 4.25% which was in line with strong market expectations.

There was a 3-way vote split with Taylor and Dhingra voting for a larger 50 basis-point cut while Mann and chief economist Pill voted against cutting rates.

The bank maintained its guidance that interest rates should be careful and cautious given persistent inflation pressures.

According to Rabobank; “Our baseline scenario remains unchanged since last summer: the MPC cuts rates quarterly, focusing on meetings with an MPR, and aims to close out 2025 with a policy rate of 3.75%.”


It added; “That said, we do agree with the market’s view prior to today’s meeting that the risk of a more aggressive pace has risen. But for that to materialize, April’s CPI print (out on May 21) must soothe rather than reignite fears of inflation’s persistence.”

Danske Bank noted positive yield spreads, but added; “More broadly, while we see domestic factors as GBP positives, we think the global investment environment will be in the driver's seat for EUR/GBP in the coming months. An investment environment characterised by elevated uncertainty, widening credit spreads and a positive correlation to a USD negative environment, in our view, favours a weaker GBP.”

The UK also reached a trade deal with the US with a reduction in tariffs on steel to zero while the tariff on cars will be cut to 10%.

The overall baseline tariff will, however, remain at 10%.

In return, the US will gain improved access to the UK market, especially in agriculture.

The UK and EU will hold a summit on May 19th.

ING commented; “The deal had already been largely priced in, and the implications for the UK economy are not significant. That said, the UK has now signed two trade deals in quick succession (with India and the US), and that is keeping markets hopeful on trade talks with the EU – which would have much more meaningful implications for the UK, and can lend a hand to troubled British finances.”


Credit Agricole noted some positives; “It should be also mentioned that the BoE outlook for the economy could improve from here, given that the MPC has not pencilled in the impact from the trade deal between the US and UK.”

The bank still sees scope for Pound gains; “markets will focus on BoE speeches as they gauge the magnitude of the bank’s easing bias in the wake of the May policy meeting. Absent any significant data disappointments or dovish surprises, the still undervalued GBP could outperform the EUR.”

RBC is still concerned over UK fundamentals; “its net international investment position is negative not positive. That means while EUR and JPY benefit from a Fed cutting cycle, GBP should lag, leading EUR/GBP higher in 2026.”

The bank added; “The 2022 Truss episode has done lasting damage in that even under pretty extreme global conditions, gilt investors, and by extension the UK govt, see limited room for the govt to offer much fiscal support.”

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TAGS: Currency Predictions Pound Euro Forecasts