Pound Sterling Forecast: GBP/EUR Slips Amid UK Tax Concerns

Modified: Thursday, 28 August 2025 15:30 BST - Written by David Woodsmith

STORY LINK Pound Sterling Forecast: GBP/EUR Slips Amid UK Tax Concerns

The Pound to Euro exchange rate (GBP/EUR) drifted on Thursday, slipping back from Wednesday’s one-week peak, as subdued trading and a muted data calendar capped volatility.

At the time of writing, GBP/EUR was trading at €1.1586, moving without clear direction through the session.

The Pound (GBP) found little momentum on Thursday, with a quiet UK economic calendar and a cautious market mood limiting demand for Sterling. As a result, GBP/EUR edged lower from Wednesday’s one-week peak as the British currency lost traction.

At the same time, persistent tax concerns continued to mute GBP sentiment. Markets remain wary that Chancellor Rachel Reeves may resort to tax increases this autumn as the government battles rising borrowing costs.

Fresh reports on Thursday suggesting that Reeves is weighing up extending national insurance to rental income reignited fears of further fiscal tightening, curbing the Pound’s upside potential.

The Euro (EUR) held broadly steady on Thursday, with contrasting drivers leaving the single currency trading in a narrow range.

The latest Eurozone economic sentiment index disappointed, slipping from 95.7 in July to 95.2 in August, missing forecasts of a modest uptick to 96. This underscored lingering concerns over the bloc’s growth outlook and kept pressure on EUR.

Even so, the Euro avoided deeper losses as support came from its inverse relationship with the US Dollar (USD), which weakened at the start of the European session.

GBP/EUR UPDATE

Looking ahead, a series of German economic releases could set the tone for Pound to Euro trade on Friday.

The session begins with Germany’s latest retail sales numbers, where an expected contraction in July may put the Euro under pressure. This will be followed by employment data, with forecasts pointing to a 10,000 increase in joblessness – a result that could further weigh on sentiment towards the common currency.

However, later in the day the Euro may find some reprieve from Germany’s inflation print. Prices are expected to have risen in August, a development that could temper expectations for further European Central Bank (ECB) interest rate cuts and lend support to EUR.

As for Sterling, a lack of notable UK data leaves GBP reliant on domestic headlines and shifts in broader market mood, with risk appetite likely to steer movement in the increasingly risk-sensitive currency.

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TAGS: Pound Euro Forecasts