British Pound to Euro Forecast: EUR Weakens on French Political Turmoil

Modified: Tuesday, 7 October 2025 08:00 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: EUR Weakens on French Political Turmoil

A fresh wave of political uncertainty in France rattled European markets and sent the Euro exchange rates lower, allowing GBP/EUR to climb to two-week highs near 1.1520 as investors assessed the fallout for Euro stability and fiscal policy.

GBP/EUR Forecasts: Jump to 2-Week Highs

The Euro was already on the defensive in early Europe on Monday and retreated further following the shock resignation of French Prime Minister Lecornu.

The Pound to Euro (GBP/EUR) exchange rate jumped to 2-week highs just above 1.1520 before trading around 1.1510.

In the short term, GBP/EUR needs to hold above 1.15 to maintain more positive sentiment.

In a shock announcement, French Prime Minister Lecornu announced his resignation on Monday.

French bonds came under renewed pressure while the CAC 40 index dipped 1.5%.

Lecornu had only been in office for 26 days following the resignation of previous Prime Minister Bayrou.

There had been strong criticism of his cabinet appointments and inevitably, there was persistent opposition to budget-tightening measures.

In particular, the appointment of Macron loyalist Lescure as Finance Minister triggered strong criticism from opposition parties.

There will be further fears surrounding the French debt dynamics with a fresh focus on French bonds.

The French 10-year bond yield increased to 3.58% from 3.51% ahead of the announcement.

The spread over German yields widened to 87 basis points and the most since January.

Renewed selling pressure on bonds would trigger fresh concerns surrounding Euro stability.

MUFG commented; “For the market, the worst case would be if he tries to break that deadlock by calling snap parliamentary elections, that would extend the uncertainty in the near term and likely trigger another leg lower for the euro.”

Danske analyst Kirstine Kundby-Nielsen added; “There doesn’t seem to be a willingness to get lower government deficits and consolidate French public finances and investors want a premium for that.”

SocGen’s Chief FX Strategist Kit Juckes, however, played down the impact; "This is ongoing issue – France – as far as the euro is concerned. France can have some impact on the euro, but the overall impact is much less than it was."

MUFG is still bearish on the Pound due to domestic fundamentals, especially as it sees risks surrounding both the fiscal and monetary policy outlook.

On fiscal policy the focus will remain on the November budget with expectations of further tax hikes.

The bank also considers that markets are underplaying risks to interest rates.

It noted; “Even if the BoE leaves rates on hold in November as currently expected, we doubt it will prevent the GBP from weakening further against the EUR. We have not completely ruled out a rate cut as soon as in December at which point there could be more evidence of inflation slowing in the UK and the BoE will have seen the government’s updated fiscal plans.”

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TAGS: Pound Euro Forecasts