Pound to Euro Week Ahead Forecast: GBP Short-term Vulnerability Warning

Modified: Monday, 22 September 2025 10:00 BST - Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: GBP Short-term Vulnerability Warning

The Pound Sterling and the Euro currencies slipped to six-week lows near 1.1550 as UK fiscal worries resurfaced. Rising government borrowing, tighter budget risks and the Bank of England’s cautious policy stance weighed on sentiment.

Danske Bank now Pound-to-Euro exchange rate forecasts GBP/EUR sliding to 1.1235 over 12 months, while Macquarie expects a rebound towards 1.1765 into 2027.

GBP/EUR Forecasts: Fiscal fears return

Danske Bank forecasts that the Pound to Euro (GBP/EUR) exchange rate will weaken to 1.1235 on a 12-month view.

Macquarie notes potential short-term vulnerability, but expects GBP/EUR gains to 1.1765 by early 2027.

GBP/EUR dipped to 6-week lows near 1.1550 late in the week amid fresh concerns surrounding UK fundamentals.

According to Danske Bank; “We see domestic factors and the relative growth outlook between the UK and the euro area as becoming GBP negatives. This is further amplified by divergence in the fiscal policy outlook with UK fiscal policy set to be tightened in the Autumn.”


Macquarie played down the Pound risks; “Fiscal concerns occasionally make their presence felt and, when they do, the spectacle of sterling selling off in tandem with rising yields can be unsettling. But such episodes have been brief, and the present state of the UK yield curve can be largely explained by expectations for a persistently elevated policy rate, together with some spillover effects from a steepening of yield curves globally.”

The Bank of England held interest rates at 4.00% at the latest policy meeting, in line with strong consensus forecasts.

There was a 7-2 vote for the decision as Dhingra and Taylor voted for a further cut to 3.75%.

There was no significant shift in guidance with Bank Governor Bailey continuing to warn over the need for caution over any further cuts.

The latest government borrowing data was worse than expected with the August deficit at £18.0bn compared with £14.5bn the previous year.

Spending increased sharply over the year with central government's current expenditure provisionally estimated as £89.1 billion from £81.3bn the previous year.

The data triggered fresh fears surrounding underlying fiscal trends as UK yields moved higher again.

RBC commented on the outlook; “Related to the Budget theme, we continue to see a strong sensitivity of GBP to moves in long-end rates. Typically, GBP should strengthen as yields rise, yet recently we have seen some “sell everything UK” moves where sterling, equities and bonds have all sold off in tandem as fiscal concerns sour investors perception of the UK.

Investment banks continue to discuss the outlook for BoE policy.

According to MUFG; “Recent data hasn’t produced any surprises and the bar for a November cut looks high after the finely balanced vote to cut in August. We continue to expect the next cut in December.”

MUFG added; “The onus will be on the data and there will be plenty of it between the next two meetings, and we suspect that Budget speculation will increasingly weigh on sentiment and activity. We then see gradual easing continuing in 2026 to a terminal rate of 3.25%.

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TAGS: Currency Predictions Pound Euro Forecasts