Pound-to-Euro Forecast: GBP/EUR Softens as ECB Hawkish Signals Emerge

Modified: Tuesday, 9 December 2025 07:01 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: GBP/EUR Softens as ECB Hawkish Signals Emerge

The Pound to Euro exchange rate (GBP/EUR) dipped to around 1.1430 after failing to hold five-week highs, with ECB commentary prompting renewed caution.

Short covering continues to support Sterling in the near term, but medium-term yield spreads still favour the Euro.

BoE rate-cut expectations ahead of next week’s meeting keep upside limited.

GBP/EUR Forecasts: Retreat

The Pound-to-Euro rate failed to hold 5-week highs above 1.1450 and is currently trading around 1.1430.

Position adjustment has supported the Pound, but yield spreads will dominate over the medium term and could be an important negative Pound factor.

Sterling has continued to gain support from short covering following the budget.

MUFG commented; “The Budget contained no negative surprises that might destabilize the gilt market or create near-term political uncertainty.”

For now, the bank has closed its short GBP/EUR position, but will still be looking for renewed weakness over the medium term.

It added; “we are not convinced that GBP’s upward momentum will be sustained once this position adjustment runs its course.”

In this context, yield trends will be a key element. Markets remain confident that the Bank of England (BoE) will cut rates next week, but there has been some speculation that the ECB could increase rates next year.

The latest KPMG labour-market survey continued to indicate fragile confidence, but recorded a slight improvement from October with the rate of decline in permanent job placements at the slowest rate since July 2024.

Lisa Fernihough, head of advisory at KPMG commented; "There will be relief at the absence of major tax hikes. However that alone is unlikely to be enough to see a marked change in how firms are planning." Some other recent business surveys have similarly shown downturns in hiring before Reeves' annual budget last month.”

There was some upward pressure on wages with the rate of increase in starting salaries at a 5-month high.

At this stage markets remain very confident that the Bank of England will cut rates at the December meeting.

There is, however, likely to be a close vote with Governor Bailey potentially holding the crucial swing vote.

Comments from BoE members will be monitored closely on Tuesday with four members due to testify to the Treasury Select Committee, although, unusually, Governor Bailey will not participate.

There will be a big reaction in markets if Ransden appears to back away from a call for lower rates.

According to Oxford Economics; “We continue to think that the MPC will cut at one of the next two meetings and favour the December meeting. But we are much less confident in that outcome than markets appear to be.”

In comments over the weekend, ECB Council member Schnabel suggested that growth forecasts could be revised higher.

ING commented; “Schnabel has suggested the ECB could revise up its growth forecasts in its next forecast round on 18 December and has said she's comfortable with markets pricing the next ECB move as a rate hike.”

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TAGS: Pound Euro Forecasts