Pound-to-Euro Rate Held Below 7-Week Best on Potential Exhaustion Threat

May 28, 2025 - Written by Frank Davies

STORY LINK Pound-to-Euro Rate Held Below 7-Week Best on Potential Exhaustion Threat

The Pound to Euro (GBP/EUR) forecast briefly hit fresh 7-week highs just above 1.1940 on Tuesday before settling around 1.1920.

Yield spreads remain positive for the Pound, but there will be further speculation over longer-term structural Euro support, especially if it can take market share from the dollar.

According to SocGen, GBP/EUR is fairly valued at present levels and the sharp April decline was clearly not justified.

It does not, however, expect a further significant GBP/EUR recovery; “From here, there is minimal upside for GBP, but EUR/GBP bulls will need plenty of patience as they wait for a catalyst to reignite the move higher.”

Markets are continuing to debate the impact of US tariffs following President Trump’s decision to backtrack from his threat to impose 50% tariffs on EU exports to the US from June 1st.

There was significant relief, but uncertainty remains a key element as the clock ticks down.

Commerzbank FX analyst Michael Pfister commented; “Clearly, the level of tariffs is being set completely arbitrarily, so we cannot assume that the tariffs announced at the beginning of April will simply remain in place if the talks fail.


The UK has already secured a limited trade deal with the US.

Commerzbank added; “The trade deal between the United Kingdom and the United States was heavily criticised afterwards. However, given the significantly more challenging negotiations with the EU, this deal is starting to look better. Although the UK has been hit with a 10% tariff, this seems manageable compared to 50%, supporting our forecast of a stronger pound in the coming weeks."

Euro-Zone data releases will be watched closely.

French consumer prices declined 0.1% for May with the year-on-year inflation rate at 0.7% from 0.8% previously. Euro-zone data will be released on Tuesday and a weak reading would reinforce expectations of a further ECB rate cut in June.

As far as UK data is concerned, the CBI retail sales survey recorded a fresh decline to -27 for May from -8 previously and compared with expectations of -18. Retailer confidence deteriorated at the fastest rate for five years and another sales decline is expected in June.

Commerzbank commented; “Now that the figures are strong again, we feel confirmed in our view that the British economy is in better shape than it appeared just a few weeks ago. At the same time, however, we would caution against expecting miracles.”

It added; "While there were fears of stagflation a few weeks ago, the outlook in the UK now looks brighter.”


The IMF raised the 2025 GDP growth forecast marginally to 1.2% from 1.1% previously.

It called for a revision to the government’s fiscal rules given that; “there is still significant pressure for frequent fiscal policy changes, given that small revisions to the economic outlook can erode the headroom within the rules, which is the subject of intense market and media scrutiny”.

A change to fiscal rules could, however, spook market confidence.

From a longer-term perspective, ECB President Lagarde has stated that doubts over the dollar’s status as a reserve currency has opened up an opportunity for the Euro.

Goven the Euro-Zone current account surplus a further build-up in Euro reserves would put upward pressure on the Euro and limit GBP/EUR support.

ING noted the potential, but also expressed caution; “Political fragmentation in Europe also remains a headwind to the grander ambitions for the euro’s global role, so we’d caution against too much optimism on that front.

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TAGS: Pound Euro Forecasts