Pound-to-Euro Week Ahead Forecast: GBP to Test 1.1550 as EUR Gains ECB Support

Modified: Monday, 1 September 2025 10:30 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Week Ahead Forecast: GBP to Test 1.1550 as EUR Gains ECB Support

The Pound to Euro exchange rate (GBP/EUR) outlook remains fragile after Sterling once again failed to hold above 1.16, slipping to three-week lows before settling near 1.1550.

Renewed fiscal and political turmoil in France has unsettled the Euro, while weak UK growth and fiscal pressures continue to cap Pound gains.

RBC now forecasts GBP/EUR will retreat to 1.11 by the end of 2026 as diverging Bank of England and ECB policy paths shape the longer-term outlook.

GBP/EUR Forecast: Crash by 2026-2027

After holding steady in the near term, RBC forecasts that GBP/EUR will retreat to 1.11 at the end of 2026.

GBP/EUR was again unable to hold above the 1.16 level during the week and briefly hit 3-week lows just below 1.1530 before settling above 1.1550. There were no major UK developments during the week with budget outlooks dominating.

The Euro was unsettled by renewed concerns over the French fiscal outlook. Prime Minister Bayrou called a government confidence vote for September 8th on the budget.

Given the Administration’s minority position, there were concerns that the government would collapse and potentially force new assembly elections which would make it even more difficult to bring the deficit under control.

Deutsche Bank commented; “The current developments reinforce concerns that the public deficit could remain above 5% of GDP until 2027, when the next Presidential election takes place. The dual challenge of a large, multi-year fiscal consolidation and split parliament means France still faces significant risk to the stability of public finances. It feels like a situation that is likely to get worse before it can get better.”

According to Standard Chartered; “France’s minority government is likely to lose a confidence vote on 8 September, leading to another minority government or snap elections. The political uncertainty is likely to weigh on European assets.”

Wells Fargo was less concerned over the situation; “While clearly problematic for the French economic outlook, from a longer-term perspective we believe France's fiscal uncertainties will have limited impact on the broader Eurozone economy and the euro.”

German inflation increased to 2.2% from 2.0% previously, triggering fresh doubts over further ECB rate cuts.

RBC expects a steady ECB policy which will support the Euro; “In our view, with the ECB’s cycle at an end, increasingly the market will focus on what the direction of travel is next. If the labour market continues to prove resilient the ECB will likely face challenges in getting the persistent elements of inflation under control and the risk of a hike could build.”

HSBC commented on the Bank of England outlook and considers that expectations of a 4% terminal rate are too high and expect four further cuts to 3.00%.

It added; “At the moment, the UK is experiencing soft growth, high inflation and significant fiscal constraints, which is limiting the options of its policymakers, households and businesses. It’s not all doom and gloom, but it’s not an easy time for anyone.”

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TAGS: Pound Euro Forecasts