Pound-to-Euro Forecast: "Negativity is Overdone" says Bank of America

Modified: Wednesday, 6 August 2025 11:30 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: "Negativity is Overdone" says Bank of America

The Pound to Euro exchange rate (GBP/EUR) has consolidated just below 1.15 after failing to hold above this level on Tuesday.

Thursday’s Bank of England policy decision will be crucial for short-term Pound moves while unease over fiscal policy remains a drag on Sterling confidence.

Hints of a faster pace of rate cuts would undermine the Pound, while stronger resistance to rate cuts would tend to boost the currency.

Bank of America considers negativity is overdone; “the mindset amongst investors remains broadly negative towards GBP, a position where we disagree.”

It added that GBP/EUR can make gains; “We remain on the view that EUR/GBP is set to gravitate lower as the impact of US-EY tariffs kicks in and the market is compelled to price in more ECB rate cuts.”

Danske Bank, however, expects net Pound losses; “An investment environment characterised by elevated uncertainty and a positive correlation to a USD negative environment, in our view, favours a weaker GBP.”

On a 6-12-month view, the bank forecasts a GBP/EUR retreat to below 1.1250.


There are very strong expectations that the Bank of England (BoE) will cut interest rates by 25 basis points to 4.00% on Thursday.

Although the headline may be predictable, it is likely to mask substantial divergence and differences of opinion within the committee.

ING commented; “that seemingly cautious action, which will continue a well-established pattern of quarterly rate cuts, masks stark divisions among policymakers on what to do next.”

The vote split will be a major element in the decision, especially given the strong potential for a split vote.

According to ING; “A three-way divide looks highly likely, with some officials voting for no change, a 25bp move and a more aggressive 50bp cut.”

Bank of America added; “We expect the BoE to cut by 25 bps at its meeting. We expect a divided committee with a vote of 2-5-2 (two votes for hold and two for 50bps cut). The tone is likely to strike a delicate balance between the trade-off the BoE is facing of still elevated inflation expectations and softening growth/pay and labour market.”

The vote of chief economist Pill will be an important marker for traders.


The bank will also release the latest forecast updates with the new estimates for growth and inflation important for medium-term rate expectations and Pound sentiment.

Guidance will be a crucial element for the currency-market reaction.

According to Commerzbank; “Governor Bailey is unlikely to commit to a specific path for rates at this week’s press conference, citing both inflation and labour-market risks, and the need to monitor incoming data closely.”

Citi added; “Given the stagflationary character of the data, we expect ‘gradual and careful’ to stay as the main forward guidance, with a highly uncertain vote split.”

BNY Mellon sees little scope for rate cuts given the underlying dynamics; “we continue to question how much policy space is available for the Monetary Policy Committee. The most relevant inflation indicators remain mixed, with weak growth the only consistent factor. The U.K. economy is drifting in and out of stagflation, mostly driven by stubbornness in wage growth.”

Wider Pound fundamentals will also remain a key talking point.

There will be further concerns over fiscal policy amid strong expectations that further tightening will be needed in the Autumn budget with the likelihood of further tax increases.

According to The National Institute of Economic and Social Research (NIESR) Chancelor Reeves will have to announce substantial measures in the Autumn budget to meet medium-term fiscal rules.

The NIESR commented; “The Government is not on track to meet its ‘stability rule’, with our forecast suggesting a current deficit of £41.2 billion in the fiscal year 2029-30. Substantial adjustments in the Autumn Budget will be needed if the Chancellor is to remain compliant with her fiscal rules.”

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TAGS: Pound Euro Forecasts