2025 Forecast: Pound Sterling to Struggle Against Euro but Gain on Dollar

Published: Saturday, 6 September 2025 21:30 BST - Written by Tim Boyer

STORY LINK 2025 Forecast: Pound Sterling to Struggle Against Euro but Gain on Dollar

The latest Pound Sterling forecasts for 2025 highlight a diverging path against its two major counterparts.

Analysts expect the Pound to Dollar (GBP/USD) exchange rate to grind higher over the next 12 months as US jobs data weakens and Fed rate cuts come into play, while the Pound to Euro (GBP/EUR) forecast remains far more subdued, weighed down by UK fiscal uncertainty and November’s budget risk.

Markets are currently pricing Sterling to push towards 1.39 against the Dollar, but struggle to hold above 1.16 against the Euro.

The consensus suggests a split outlook shaped by resilient UK economic data, stubborn 3.8% inflation, and an uncertain Bank of England (BoE) policy stance.

Pound to Dollar Forecast (GBP/USD)

The Pound to Dollar (GBP/USD) exchange rate has regained ground, trading back above 1.35 following weaker US non-farm payrolls. Only 22,000 jobs were created in August, far short of the 75,000 consensus, pushing the unemployment rate up to 4.3% — its highest since late 2021.

Scotiabank noted; “Regaining the recent peaks around 1.3545/50 would confer a little more strength on the technical outlook and put the pound on track to test major resistance at 1.3595/00.”

The data backdrop is forcing the Fed’s hand. Futures markets are pricing a near-certain September rate cut, with more than a 65% chance of three cuts by end-2025. MUFG cautioned, however, that heavy Dollar losses may require even worse data: “An NFP print closer to zero or negative will likely be needed in order to trigger a notable drop for the dollar.”

Capital Economics warned that UK fiscal credibility will remain in the spotlight; “Many of the conditions which have led to fiscal crises in the past are now in place in the UK… the missing ingredient is a trigger.”

Overall, forecasts lean towards GBP/USD strengthening into the 1.37–1.39 region, provided the Fed follows through with cuts and UK political risk is contained.

Pound to Euro Forecast (GBP/EUR)

In contrast, the Pound to Euro (GBP/EUR) exchange rate has struggled to extend gains, hovering around 1.1530 and well below key resistance near 1.1630.

Fiscal uncertainty looms large. ING warned; “GBP/EUR is more likely to trade below 1.15 rather than above 1.1630 into the November budget.” Speculation over tax hikes is expected to dominate in the weeks ahead, keeping Sterling under pressure despite support from short-term rates.

Bank of England Governor Andrew Bailey injected caution into the rate debate, noting; “There is now considerably more doubt about exactly when and how quickly we can make those further steps.”

BMO’s Laurence Mutkin sees potential for a surprise rebound: “Expectations for the Budget are so gloomy, there is scope for upside surprises.”

Danske Bank remains more positive on the Euro backdrop; “Growth has exceeded expectations, and the labour market remains resilient. The ECB has reached its terminal rate of 2%, and we expect no changes within the forecast horizon.”

Taken together, analysts expect GBP/EUR to remain capped under 1.16 and vulnerable to dips below 1.15 as fiscal and political risks overshadow BoE policy moves.

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts