Pound to Euro Week-Ahead Forecast: GBP/EUR Parity Risks Linger

Modified: Monday, 1 December 2025 07:01 BST - Written by David Woodsmith

STORY LINK Pound to Euro Week-Ahead Forecast: GBP/EUR Parity Risks Linger

The Pound to Euro exchange rate (GBP/EUR) steadied last week, but the debate over its longer-term direction remains sharply divided - a “glass half full or half empty” moment for Sterling’s outlook.

Rabobank expects GBP/EUR to gradually lose ground through 2026, maintaining a bearish medium-term stance. SocGen shares this outlook, warning that another political or economic shock could even push the pair below parity.

Bank of America, however, takes a more optimistic line, arguing that there is scope for the Pound to appreciate over the next year, forecasting a rise toward 1.19 by the end of next year.

The UK’s autumn budget eased immediate market fears, yet longer-term concerns remain significant.

Chancellor Rachel Reeves announced £26bn in tax increases over the next five years, projected to create a £21bn buffer under the government’s fiscal rules. However, much of the tax rise is back-loaded, with spending increases, especially in welfare, weighted toward the near term. This structure implies continued upward pressure on short-term borrowing.

Despite some intraday volatility, the bond market reaction was contained. UK 10-year gilt yields edged slightly lower, holding just above 4.45%.

Rabobank noted: “The pound yesterday took comfort from the fact that the gilt market had remained calm. However, fears about slow growth, weak productivity and sticky inflation are not reflective of an attractive investment backdrop. We maintain the view that EUR/GBP will creep higher into 2026.”

Bank of America highlighted lingering pessimism around Sterling: “In reality, markets have been reluctant to price in good news, preferring to trade bearish GBP news into budget.”

Markets also remain confident that the Bank of England will cut interest rates in December, with expectations strengthening further after the budget. Rabobank has downgraded its terminal rate projection from 3.50% to 3.25% and now also anticipates a December cut.

SocGen continues to argue that GBP’s underlying valuation picture has worsened, pointing to a long-term rise in purchasing power parity (PPP) fair value for EUR/GBP:

“Within Europe… the gradual rise in PPP fair value for EUR/GBP from just under 0.90 in 2000 to over parity now, is a problem… the UK is only one political calamity away from seeing EUR/GBP trade above parity.”

Eurozone developments were quieter, although fiscal tensions remain. France’s National Assembly failed to complete the first reading of the 2026 draft budget before the November 24 deadline.

Rabobank commented: “Overall, Saturday’s setback wasn’t fatal, but it underscores the growing challenges in meeting fiscal targets before year-end.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts