British Pound to Euro Forecast: GBP Slides on Rampant EUR, Higher USD

Modified: Thursday, 18 September 2025 09:30 BST - Written by Tim Boyer

STORY LINK British Pound to Euro Forecast: GBP Slides on Rampant EUR, Higher USD

The Pound to Euro exchange rate (GBP/EUR) slid to two-week lows near 1.1500 on Tuesday, unable to keep pace with a rampant Euro that continues to benefit from strong yield support. Sterling was also undermined by renewed UK fiscal concerns ahead of Thursday’s Bank of England policy decision.

The Euro extended gains on the crosses after EUR/USD briefly hit a four-year high above 1.1880 in the wake of the Federal Reserve’s 25bp rate cut. Although the dollar rebounded later as US yields climbed, the Euro’s resilience helped drag GBP/EUR lower.

Scotiabank noted;

“the ongoing moderation in easing expectations for the ECB [is] helping to deliver fundamental support to the EUR via yield spreads.”

ING added;

“Sterling's fiscal vulnerability looks more like a story for EUR/GBP. Yet a still hawkish BoE may mean EUR/GBP continues to trade in a 0.8650–0.8715 range (GBP/EUR support at 1.1480).”

UK Domestic Pressures Weigh on Sterling

Reports that the Office for Budget Responsibility (OBR) will downgrade UK productivity estimates have stoked fears of weaker growth and higher borrowing, reigniting fiscal jitters.

The latest inflation report brought little comfort. Headline CPI held at 3.8% in August, a 19-month high and the highest in the G7. Core inflation eased to 3.6% from 3.8%, slightly below forecasts, but food inflation rose again to 5.1%.

ONS chief economist Grant Fitzner commented;

“After last month’s increase, annual inflation was unchanged in August as various price movements offset each other.”

While the moderation in services inflation to 4.7% offered some relief, inflation overall remains well above the BoE’s 2% target.

Danske Bank cautioned;

“In our perspective, more disinflation is needed to justify BoE cutting rates by more than market pricing.”

All Eyes on the BoE

Markets widely expect the BoE to leave Bank Rate at 4.0% this week, though the November outlook remains open. The decision on quantitative tightening (QT) could prove pivotal given recent volatility in gilts.

HSBC warned;

“If the BoE maintains the QT pace of GBP100bn and causes upward pressure on Gilt yields, this could be a headache for GBP and even more so given the risk of unpalatable public sector borrowing numbers on Friday.”

MUFG expects a more cautious approach;

“It would mean pausing outright gilt sales that would help to ease some of the upward pressure on longer-term gilt yields.”

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TAGS: Pound Euro Forecasts