Pound-to-Euro Week Ahead Forecast: Markets Weigh 2026 UK Prospects

Modified: Monday, 5 January 2026 07:01 BST - Written by Ben Hughes

STORY LINK Pound-to-Euro Week Ahead Forecast: Markets Weigh 2026 UK Prospects

The Pound to Euro exchange rate (GBP/EUR) held near 1.1475 after briefly touching two-month highs, supported by thin holiday trading and continued short covering in Sterling.

While speculative positioning has eased, shorts remain elevated enough to leave scope for further near-term support.

Beyond year-end, confidence in the UK growth outlook will be critical in determining whether gains can be sustained into 2026.

GBP/EUR Forecasts: Will the UK Economy Surprise in 2026?

The Pound to Euro (GBP/EUR) exchange rate briefly touched 2-month highs near 1.1490 early this week and is currently trading around 1.1475 after briefly trading below 1.1450.

Overall volatility in the cross has been relatively subdued during the holiday period while there has been further evidence of Pound support from short covering.

The Euro-Zone December PMI manufacturing index was revised down to 48.8 from the flash reading of 49.2 which limited any scope for net Euro support in global markets.

The latest COT data, released by the CFTC, reported a further net decline in short non-commercial Sterling positions to just above 41,000 from 48,500 the previous week.

This is well below the peak short position of 93,000 in late November, but still the 6th highest reading in the last three years which indicates there is still the possibility of further short covering.

The evidence on UK economic activity and the market expectations surrounding the 2026 outlook will be a key influence on Sterling sentiment and Pound moves. The Pound will need evidence of stronger activity to fuel stronger Pound confidence.

Goldman Sachs is downbeat on the outlook and forecasts a GBP/EUR retreat to 1.11 on a 6-month view.

Nationwide reported a decline in house prices of 0.4% for December after a 0.3% increase the previous month and compared with consensus forecasts of a marginal increase.

The annual increase slowed to 0.6% from 1.8% previously.

Nationwide's Chief Economist Robert Gardner remained cautiously optimistic over the outlook; “Looking ahead, we expect housing market activity to strengthen a little further as affordability improves gradually (as it has been in recent quarters) via income growth outpacing house price growth and a further modest decline in interest rates. We expect annual house price growth to be broadly in the 2% to 4% range next year.

The final reading for the UK PMI manufacturing index was revised to 50.6 for December from the flash reading of 51.2, although it still registered a 15-month high.

Employment declined at a slower rate on the month while there was renewed upward pressure on prices.

Rob Dobson, Director at S&P Global Market Intelligence commented; "UK manufacturers benefited from several reduced headwinds towards the end of the year, as the negative impacts of the uncertainty surrounding the Autumn Budget, tariffs and the JLR cyber-attack all moderated. "The start of 2026 will show if growth can be sustained after these temporary boosts subside.

Bank of England policy will remain a key element with markets, at this stage, seeing scope for two further rate cuts this year.

Goldman Sachs expects further deterioration in the labour market as well as easing inflation pressures. The bank added; "As a result, we expect the Bank of England to cut the policy rate three times in 2026 for a terminal rate of 3%, below current pricing.”

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TAGS: Pound Euro Forecasts