Pound to Euro Forecast: Hope for "Repeat of January Price Action"

July 8, 2025 - Written by Frank Davies

STORY LINK Pound to Euro Forecast: Hope for "Repeat of January Price Action"

Pound Unable to Escape from Budget Fears, GBP/EUR Fails to Hold 1.16

The Pound to Euro (GBP/EUR) exchange rate tested the 1.1630 area late on Monday as trade fears hurt the Euro before retreating to 1.1580 on Tuesday.

On-going fiscal concerns have continued to sap Pound support in global markets while hopes for an EU trade deal with the US have helped underpin the Euro.

There had been hopes that the UK-US trade deal with give the UK a net advantage over the Euro area, but any potential advantage would be eroded if the EU can secure a similar deal.

Bank of America is looking for a GBP/EUR recovery; “As long as the Chancellor remains, our hope is for a repeat of January price action, when fiscal-driven volatility subsided quickly and GBP eventually recovered.”

MUFG, however, is forecasting a GBP/EUR slide to 1.13 over the next few months.

There are no major UK data releases until the latest GDP data on Friday with markets expecting 0.1% growth for May after a 0.3% contraction for April.


In its latest medium-term report, the Office for Budget Responsibility (OBR) has issued a strong warning over the underlying UK fiscal position.

It points out that the budget deficit is running at 5.7% of GDP and well above the level needed to stabilise government finances.

According to the OBR; “Efforts to put the UK’s public finances on a sustainable footing after a series of global shocks have met with only limited and temporary success in recent years, leaving the UK with the sixth-highest debt, fifth-highest deficit, and third-highest borrowing costs among 36 advanced economies.”

It added; “Against this more vulnerable backdrop, the risks to the fiscal outlook are mounting, including: the sustainability of state and private pensions and the sector’s demand for government debt.”

Global trade developments have also had a significant Pound impact.

Overnight, the US started the process of issuing updated tariff levels for major economies.

According to President Trump, 25% tariffs will be levied on Japan and South Korea.


There will, however, be a further delay to August 1st from July 9th for implanting the tariffs.

Significantly, there has been no letter at this stage for the EU. This has boosted optimism that the EU will be able to secure at least a limited framework deal.

MUFG commented; “The EU is also seeking an exemption from the 10% tariff rate for certain key products including aircrafts, aircraft parts as well as wine and spirits. Furthermore the EU is reportedly pushing the US for quotas and exemptions to effectively lower the 25% tariff that currently applies to autos and parts as well as the 50% tariff for steel and aluminium.

It added; “A potential deal that sounds similar to the one agreed recently by the UK.”

According to ING; “Reports suggest that the EU might be able to secure a decent trade deal with the US after all. The EU's negotiating leverage of a community of 450 million consumers is leading to reports that the baseline 10% US tariff on EU imports can be maintained, while there might be some better carve-outs for the aircraft or drinks industries.”

There is still a high degree of uncertainty and it added; “Obviously, there are still big challenges with auto tariffs at 25%, and one of the biggest shoes to drop is what happens in the pharma sector. Let's see.”

Any breakdown in talks would risk Euro selling in global markets.

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TAGS: Pound Euro Forecasts