Pound to Euro Forecast: Potential 1-2% GBP Losses Ahead, Warns Bank

July 3, 2025 - Written by Frank Davies

STORY LINK Pound to Euro Forecast: Potential 1-2% GBP Losses Ahead, Warns Bank

The Pound-to-Euro exchange rate (GBP/EUR) posted sharp losses to 10-week lows around 1.1535 on Wednesday amid unease over fiscal policy and increased speculation that Chancelor Reeves would be replaced.

Pound Sterling recovered some ground on Thursday with a rebound to 1.1580 with the latest UK data providing some support.

ING commented; “An extreme move could potentially add 1-2% to EUR/GBP, making the April high of 0.8750 a very visible near-term target. (1.1430 for GBP/EUR)

The bank, however, considers that consolidation is the more likely outcome in the short term and added; “EUR/GBP could sink into a 0.8600-0.8650 range as it awaits further developments. (1.1560-1.1630 for GBP/EUR)

Sterling was initially undermined by the series of U-turns on the Welfare spending bill. Losses intensified after Chancellor Reeves was seen in notable distress during Prime Minister’s questions.

There was increased speculation that she was going to be replaced or resign as Chancellor, especially as there was no immediate backing by Prime Minister Starmer.

Market fears over a wider policy shift triggered a sharp sell-off in UK bonds with the 10-year yield jumping to above 4.60% from around 4.45%.


Inevitably, there was fresh talk of parallels with the 2022 Truss fiscal event.

MUFG commented; “While we don’t believe Prime Minister Keir Starmer is currently facing a similar fate at least not immediately, the unfavourable market reaction will increase pressure on the government to take action to restore confidence.”

Currency strategist Carol Kong at Commonwealth Bank of Australia noted; "The pound can remain under downward pressure unless the U.K. government takes measures to restore market confidence in U.K. finances."

According to MUFG; “Overall, the latest developments support our view that downside risks have been increasing for the pound.”

It added; “Unless confidence is quickly restored the pound will continue to trade on an even weaker footing than we had expected.”

Fiscal policy will inevitably be watched very closely in the short term

ING commented; “The scars of the 2022 ‘mini budget’ crisis still appear to be deeply etched into the political memory in Westminster. And we still suspect the Chancellor – be it Rachel Reeves or any successor – will be reluctant to make major changes to the fiscal rules, amid fear of provoking an adverse reaction in markets. Our base case is still that tax rises will do the heavy lifting this autumn.”


The UK data provided some relief with the PMI services-sector index revised to 52.8 for the final reading from the flash reading of 51.3 and the strongest reading since August 2024.

New orders posted a net gain, although employment declined again and prices increased at the slowest rate for four years.

Tim Moore, Economics Director at S&P Global Market Intelligence, commented; "June data highlighted a modest rebound in UK service sector growth, fuelled by a turnaround in domestic business and consumer spending after a soft patch during the spring.”

He added; "A combination of easing price pressures and lower employment leaves the door open for the Bank of England to resume its run of interest rate cuts at the next policy meeting in August."

The Euro side of the equation will also be important with some further reports that the ECB is wary over further Euro gains given the impact on inflation.

According to ING, concerns are likely to be limited for now; “these macro concerns over euro strength are at odds with the view that Europe should be taking advantage of this 'global euro' moment – and we'd back the latter story here, where global portfolio re-allocated to the eurozone can only be a good thing for private sector borrowing costs.”

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TAGS: Currency Predictions Pound Euro Forecasts