Pound to Euro Price Forecast: Target 1.1240, says This Bank

Modified: Monday, 27 October 2025 09:15 BST - Written by James Fuller

STORY LINK Pound to Euro Price Forecast: Target 1.1240, says This Bank

The Pound to Euro exchange rate (GBP/EUR) fell sharply through the week as budget jitters and renewed Bank of England (BoE) rate cut speculation weighed on Sterling sentiment.

At the time of writing, GBP/EUR was trading just below 1.1440, marking its weakest level in almost three months after slipping decisively through the 1.15 handle.

The Pound’s decline came despite a stronger-than-expected set of UK retail sales and consumer confidence figures, highlighting the market’s focus on policy rather than data.

As Nomura’s Dominic Bunning put it: “We’re still looking for some underperformance (in the pound), in general.”

The inflation picture offered little comfort. Headline CPI held at 3.8% for September — defying expectations for a rise — while core eased slightly to 3.5% from 3.6%, fuelling expectations that the BoE could move sooner on rate cuts.

According to MUFG, the inflation miss “certainly opens up the prospect of a rate cut in December.”

The bank noted growing dovish momentum within the MPC:
“Two MPC members are already voting for a cut (Dhingra & Taylor) and Deputy Governor Ramsden may well now join them. A shift from Governor Bailey to vote for a cut would probably be enough… so the balance of the majority could quickly shift.”

MUFG maintains a GBP/EUR downside target of 1.1240, reflecting its expectation that the BoE’s dovish turn will continue to undermine Sterling.

Credit Agricole, however, sees the opposite trajectory — forecasting a rise to 1.2050 by end-2026, arguing that “many BoE-related negatives are in the price of the GBP already.”

The bank added:
“The GBP further continues to look quite oversold vs both the EUR and the USD. We thus think that the GBP’s underperformance should prove short-lived.”

It also framed the softer inflation data as a potential relief rather than a threat:
“While the GBP kneejerk reaction was renewed weakness across the board as investors front-loaded BoE rate cut expectations, we see the data as a positive development for GBP-assets that have been hobbled by stagflation fears in recent months.”

Meanwhile, Eurozone data surprised to the upside, led by stronger German figures that pushed services sector growth to a 14-month high.

Danske Bank argued that relative growth trends favour the Euro in the near term:
“We see domestic factors and the relative growth outlook between the UK and the euro area as GBP negatives.”

However, Credit Agricole remains cautious about the Euro’s durability:
“Persistent market worries about the Eurozone cyclical outlook and/or foreign portfolio outflows from Eurozone bank stocks could keep the EUR headwinds in place in the near term.”

GBP/EUR Outlook: Fiscal Tensions Meet Policy Divergence

Looking ahead, Sterling’s trajectory will hinge on next month’s UK Budget and how far the Chancellor goes to address fiscal gaps without stifling growth.

Markets are wary that fiscal tightening — combined with a more dovish BoE — could leave the Pound vulnerable into year-end, especially if Eurozone data momentum continues to improve.

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TAGS: Pound Euro Forecasts