British Pound to Euro Forecast: GBP/EUR Whipsawed by Tariffs, Rates and Risk Mood

Modified: Monday, 26 January 2026 07:01 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: GBP/EUR Whipsawed by Tariffs, Rates and Risk Mood

The Pound to Euro exchange rate (GBP/EUR) is pulling in opposite directions as banks diverge sharply on the outlook, with tariff-driven volatility, shifting Bank of England rate expectations and geopolitical risk leaving the cross finely balanced.

GBP/EUR Forecasts: Half Full or Half Empty

Danske Bank forecasts that the Pound to Euro (GBP/EUR) exchange rate will weaken to 1.1240 on a 12-month view.

In contrast, HSBC expects GBP/EUR will hold around 1.15.

GBP/EUR dipped sharply to 2-week lows below 1.1450 early in the week as risk appetite dipped sharply following President Trump’s threat to impose fresh tariffs on the UK and seven other European countries over Greenland.

The pair then rallied strongly to above 1.1530 as the tariff threat was removed and the Pound also drew support from stronger than expected UK data.

Geo-political developments will remain a key element in the short term and potentially throughout the forecast period.

ING expects underlying Euro support against the dollar which will drag GBP/EUR lower; “This time last year, US Defence Secretary Pete Hegseth was rubbishing NATO and driving Europe into more defence spending and more German fiscal stimulus. Eurozone 10 year swap rates jumped 40bp on this theme last year and quickly dragged EUR/USD some 5% higher. It is hard to see similar-size moves happening again – unless there is some surprise extra fiscal stimulus emerging – but this is a theme that will provide support to the euro on dips.”

Following stronger than expected PMI business confidence data with strong upward pressure on costs, there was a shift in Bank of England (BoE) expectations with traders pricing in only one cut during 2026.

Danske Bank remains more dovish; “We expect the BoE to deliver the next cut in the Bank Rate in April but see risks of the cut being delivered sooner and also the risk of additional cuts down the slide. We see relative rates as a slight positive for EUR/GBP.”

It added; “The key risk to seeing EUR/GBP trade substantially higher than our forecast is a sharp sell-off in global risk and/or renewed focus on the UK’s fragile fiscal position. Other risks are closely related to the developments in the relative growth outlook between the euro area and the UK.”

Danske did, however, add; “If growth fares better than expected in the UK, this could send EUR/GBP substantially lower. Similarly, if risky assets experience a significant rally we would expect EUR/GBP to move lower.”

According to HSBC there are risks on both sides for the Pound with scope for elevated volatility.

It expressed the bearish case; “UK fiscal and monetary policy are both restrictive with BoE rates somewhat above HSBC's 3% neutral rate estimate. As the BoE cuts rates closer to neutral in 2026, we expect GBP to weaken versus G10 currencies whose policy rates are already neutral.”

On the other side it added; “If, however, the credit cycle picks up, it could stir economic optimism that supports GBP.”

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TAGS: Pound Euro Forecasts