Pound-to-Euro Week Ahead Forecast: "Contained" FX Reaction to Iran Oil Risks

June 23, 2025 - Written by Tim Boyer

STORY LINK Pound-to-Euro Week Ahead Forecast: "Contained" FX Reaction to Iran Oil Risks

Foreign exchange analysts at ING expect the Pound to Euro exchange rate (GBP/EUR) to retreat to 1.1630 on a 6-month view amid ongoing Bank of England interest rate cuts.

Danske Bank expects GBP/EUR losses to 1.1500 on a 12-month view.

Credit Agricole, however, sees scope for GBP/EUR gains to 1.2050 at the end of 2025 with the undervalued Pound able to take advantage of positive yield spreads.

Pound Sterling posted net losses against the Euro during the week, but did find support below 1.1700.

There were no major Euro-Zone data developments during the week.

Higher oil prices will be a net negative for the currency, but also put upward pressure on inflation

According to Scotiabank; “This week’s fundamental developments have been important, as ECB policymakers have continued to confirm the ongoing shift toward a neutral stance.”


There was also further evidence of net capital inflows

The Bank of England held interest rates at 4.25% at the latest policy meeting, in line with strong consensus forecasts.

There was a 6-3 vote as Taylor, Ramsden and Dhingra dissented and called for a further 25 basis-point cut to 4.00%.

The majority considered that there was no immediate case for lowering interest rates at this meeting.

The three members voting against considered that policy was still too tight.

There was no significant change in guidance with the bank still backing careful and cautious easing. Markets remain confident that there will be an August cut.

UK retail sales data was weaker than expected with a 2.7% slide for May, which more than reversed April’s gain.


The latest UK government borrowing data reinforced concerns that further tax increases would be needed in the Autumn.

According to Credit Agricole; “A ‘comfortable hold’ by the BoE coupled with data-dependent forward guidance could encourage UK rates investors to reassess their dovish outlook. We further note that the GBP has been trading at a discount vs its rate advantage over the EUR.”

Credit Agricole added; “We thus largely concur with a terminal rate of about 3.50% priced in by money markets, which should ultimately allow the GBP to fare somewhat better than the EUR in the long run, if in the meantime the UK economy outperforms the Eurozone somewhat and still faces shallower pitfalls.”

ING commented; We see more upside for EUR/GBP in the second half of the year. The pound was often shielded by high funding costs and positive domestic UK news, but the Bank of England is likely to cut at least twice in the second half as the domestic outlook deteriorates.

The Euro-Zone recorded a further current account surplus for April and ING added; “The euro incidentally stands to benefit more than the pound from de-dollarisation trends.”

According to Rabobank there is scope for further rates; “Crucially, we still view a 3.75% nominal rate as restrictive – unlikely to fuel demand or reignite inflation. That means the bar for continuing to cut this year isn’t especially high.”

Rabobank added; “Our terminal rate forecast remains at 3.00%, reached in 2026. There are two key conditions. First, the inflation anchor must hold, and expectations of price-setters in particular need to keep drifting lower. Second, markets mustn’t get ahead of themselves. Too much easing priced into the medium term could undermine the Bank’s stance. But that’s not happening right now.”

Oil Prices were up 1% on Monday after markets were expeced to see volalitity to the upside on news that the Iranian parliament voted to shut the oil corridor Strait of Hormuz.

"The dollar is trading higher this morning after the US strikes on Iran" say analysts at ING.

"Geopolitics impact on FX remains contained."

"But the moves still look quite small in FX, which suggests lingering reluctance to unwind strategic USD shorts, as well as market hopes for a potential de-escalation. Oil remains the key driver for FX, but data and Fed Chair Jay Powell’s testimony are also in focus this week"

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TAGS: Currency Predictions Pound Euro Forecasts