Pound to Euro Forecast: Retreat to 1.14, Says High Street Bank

July 6, 2025 - Written by Frank Davies

STORY LINK Pound to Euro Forecast: Retreat to 1.14, Says High Street Bank

After a brief spike in fear and 10-week lows close to 1.1530, the Pound to Euro exchange rate (GBP/EUR) has continued to secure a net recovery and is trading just above 1.1600 on Friday.

There are, however, still important longer-term reservations over the fiscal outlook and Pound.

Rabobank maintains a 12-month GBP/EUR forecast of 1.1580 while HSBC forecasts a retreat to 1.14 at the end of 2025.

If immediate UK fears remain in abeyance, US trade developments are liable to dominate next week.

According to President Trump letters will start being sent on Friday informing countries of their tariff rates.

MUFG commented; “The greatest unknown therefore is the outcome of the reciprocal tariff plans that should become clear over the weekend and first few days of next week before 9th July.”

There are reports that the range of tariffs will be set at 10-20% to 60-70%.


MUFG added; “Given the UK tariff rate is 10% and Vietnam, with one of the fastest growing trade imbalances with the US, at 20%, the markets were expecting much lower ranges.”

An aggressive stance and trade fears could boost the Euro in global markets, although the Euro-Zone tariff will also be a key element. A favourable rate or an announcement of a framework deal could boost risk appetite and underpin the Euro.

Domestically, short-term fears surrounding the position of Chancellor Reeves have eased, although the latest public appearance was only brief.

The bond market has stabilised with the 10-year yield trading just above the 4.50% level compared with levels above 4.60% earlier in the week.

There are no major data releases until the end of next week with the latest GDP data.

There are only two weeks left of the current House of Commons session and immediate pressures could ease during the holiday period.

There are still longer-term concerns surrounding the UK fiscal outlook and wider fundamentals.


Jeffries chief financial economist Mohit Kumar commented; "The UK government faces a difficult choice. We have a negative view on the UK fiscal picture. Our view of growth is much lower than the official OBR forecasts (we are looking at 1-1.2% growth in the UK for the next three years, vs 1.7-1.9% which is the OBR forecasts).”

He pointed to the revenue constraints; “Even if we get higher taxes, we do not think that raising taxes will give as much revenue as the government would be hoping for.”

He added; “Thus the government would need hard choices in order to bring the deficit picture in line. Recent market reaction reflects the market concerns on the credibility of the government to bring down fiscal deficits."

According to MUFG; “Ultimately this is a government which faces a precarious fiscal situation and cannot escape from that reality.”

The ECB has continued to express some reservations over the stronger Euro with further evidence that there will be concerns if EUR/USD moves quickly above the 1.20 level.

The immediate impact is likely to be limited and ING commented; “In our experience, central bank concern over macro-driven moves in exchange rates are slow to turn trends around.”

Rabobank does note potential limits to Euro gains; “Since there is a lot of optimism already priced into the EUR, we are wary about the pace of further gains in the months ahead.”

It added; “That said, on our expectation that the BoE will continue to cut rates, on balance we favour a modest upside trend for EUR/GBP on a 12-month view.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Currency Predictions Pound Euro Forecasts