British Pound to Euro Forecast: This Bank Targets 1.1240 as Bond Stress Persists

Modified: Tuesday, 30 September 2025 12:30 BST - Written by Tim Boyer

STORY LINK British Pound to Euro Forecast: This Bank Targets 1.1240 as Bond Stress Persists

The Pound to Euro exchange rate (GBP/EUR) rebounded to one-week highs near 1.1470 on Monday, but analysts warn the bond market remains Sterling’s weak spot.

MUFG still targets 1.1240 on expectations the Bank of England will cut faster, while Deutsche Bank highlights that some of the pound’s sharpest falls this year have come when UK yields spiked relative to peers.

Political uncertainty around Labour’s fiscal stance adds another layer of risk for GBP/EUR.

GBP/EUR Forecasts: Rebounds to 1-Week Highs

After hitting 8-week lows below 1.1430 last week, the Pound to Euro (GBP/EUR) exchange rate has rallied to 1-week highs just above 1.1470 on Monday with markets assessing whether support levels can hold.

MUFG maintains a bearish stance on the Pound as it expects that the Bank of England will eventually cut interest rates faster, especially if the government sanctions further tax hikes. It maintains a GBP/EUR target of 1.1240.

UK equities have made net gains on Monday with the FTSE 100 index close to record highs which has provided an element of Pound support.

There has been some relief in the UK bond market on Monday with the 10-year yield declining to near 4.72% from 4.75% on Friday with the 30-year yield holding around 5.52%.

There are, however, still important concerns surrounding the underlying dynamics in the bond market given persistent fiscal stresses.

Deutsche Bank noted that stresses in the bond market have undermined the Pound several times this year. It added; “Notably, some of the largest falls in sterling over the past twelve months have occurred when UK yields have risen by more than peers, rather than when they have fallen.”

The latest COT data, released by the CFTC, recorded a small decline in short Pound positions to 2,000 in the latest week from 6,500 the previous week which suggests that hedge funds are broadly neutral on the Pound at this point.

The immediate political focus will be on the Labour Party conference in Liverpool which starts on Monday with a notable focus on economic policy.

ING commented; “At the heart of that story is weak UK growth and parlous public finances, which leave the UK Labour government with very little room for manoeuvre. Not helping that story last week was an interview given by Prime Minister Keir Starmer's main rival, Andy Burnham, that the government should ignore the bond market.”

It added; “Any signs that the government will cede ground to the left wing of the party by, say, withdrawing the two-child cap on benefits, would be taken poorly by Gilts and sterling.”

MUFG also noted political concerns; “Fears over a shift to the left for the ruling Labour party have gathered pace this week triggered by reports that PM Starmer could potentially face a leadership challenge next year from Manchester Mayor Burnham who reportedly favours increasing government spending.”

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TAGS: Pound Euro Forecasts