Pound-to-Euro Forecast: Analysts Warn Break Below 1.1420 Risks Fresh Losses

Modified: Wednesday, 1 October 2025 10:00 BST - Written by Frank Davies

STORY LINK Pound-to-Euro Forecast: Analysts Warn Break Below 1.1420 Risks Fresh Losses

The Pound to Euro (GBP/EUR) exchange rate has drifted back under 1.1450 with analysts warning that a break below 1.1420 could trigger deeper losses. UK fiscal and current account pressures leave Sterling vulnerable, while ING notes that firmer Eurozone inflation data should keep the ECB cautious on cuts, offering support to the euro.

GBP/EUR Forecasts: UK Bond-Market Vulnerability Remains in Focus

The Pound to Euro (GBP/EUR) exchange rate has not been able to build on Monday’s recovery and has drifted lower to just below 1.1450 on Tuesday with the Euro holding firm.

The 10-year yield has settled around 4.70%, lessening the immediate threat of a fresh Pound sell-off.

Sentiment remains fragile, however, amid underlying concerns surrounding the UK bond market.

Any break below 1.1420 would risk a further sell-off.

The latest data emphasised that the UK is running a substantial current account deficit which will maintain the need for investment inflows to fund the deficit.

In this context, the Pound will remain vulnerable if there are jitters in the bond market.

Revised data continued to record UK GDP growth of 0.3% for the second quarter of 2025, but annual growth was revised slightly higher to 1.4% from 1.3% due to historic revisions.

Paul Dales, chief UK economist at Capital Economics noted that the data suggests productivity growth was slightly stronger than expected. He added; “The OBR will take these revisions into account ahead of the Budget, but they are very unlikely to prevent the downgrade to the OBR’s productivity growth forecasts that will contribute to the Chancellor having to raise some money, most likely via higher taxes.”

There will be weeks of speculation over which taxes will be targeted. Today. For example, share prices in gambling stocks have declined due to fears that taxes would be increased in this sector.

Thomas Pugh, chief economist at RSM UK commented; “The big question now is whether speculation about the budget will undermine confidence further.”

As far as the balance of payments are concerned, the current account deficit widened to £28.9bn for the second quarter of 2025 from a revised £21.2bn in the first quarter and well above consensus forecasts, maintain underlying funding pressures.

German labour-market data was slightly weaker than expected with a 14,000 increase in unemployment for September after a 9,000 decline the previous month.

The French inflation rate increased to 1.2% for September from 0.9%the previous month, although slightly below consensus forecasts of 1.3%.

German data will be released later in the day with expectations of an increase in the annual rate to 2.3% from 2.2%.

ING commented; “An acceleration in headline readings is widely expected this month, and should keep the pressure off the ECB to review its current cautious stance anytime soon. On the margin, it should be positive for the euro.”

Significantly weaker than expected data, however, could trigger renewed expectations of a further ECB rate cut.

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TAGS: Pound Euro Forecasts