Pound to Euro Forecast: GBP Clings On as EUR/USD Surge Dominates

Modified: Wednesday, 28 January 2026 09:46 BST - Written by Tim Boyer

STORY LINK Pound to Euro Forecast: GBP Clings On as EUR/USD Surge Dominates

The Pound to Euro exchange rate (GBP/EUR) is holding just above 1.15, tracking the euro higher rather than drawing support from domestic UK fundamentals as EUR/USD pushes to four-year highs.

Sterling has largely moved in tandem with broader euro strength, masking rising concerns over UK inflation and political instability.

GBP/EUR Forecasts: Holds Above 1.1500

The Pound to Euro (GBP/EUR) exchange rate has consolidated around 1.1520 with the Pound managing to keep pace with another powerful move from the Euro as EUR/USD posted the highest rate for over four years.

Key resistance for the pair remains around 1.1570.

The British Retail Consortium (BRC) reported that UK shop prices increased 1.5% in the year to January compared with consensus forecasts of an unchanged reading of 0.7% and the highest reading since February 2024.

Non-food prices increased 0.6% over the year from -0.3% previously while the rate of food price inflation increased to 3.9% from 3.3%.

BRC Chief Executive Helen Dickinson commented; “Any suggestion that inflation has peaked is simply not borne out by these figures. Shop price inflation jumped this month due to high business energy costs and the hike to National Insurance continuing to feed through to prices.”

The Bank of England has expressed concerns over the rate of food-price inflation during the past year and this data will maintain these concerns.

The bank will also take note of last week’s business confidence data which indicated stronger activity and on-going upward pressure on prices.

Markets are not expecting any further rate cut at next week’s policy meeting, but there is the possibility that rate cuts later in 2026 will be seen as less likely.

Scotiabank commented; “Markets are not pricing in any further BoE easing until mid-year at this point but the data did chip away a few bps of easing risk in June swaps.”

UK political developments will also be monitored closely amid on-going tensions within the Labour Party. Over the weekend, Greater Manchester Mayor Burnham was blocked from standing in the Gorton by-election which has annoyed many MPs in the party.

ING commented; “UK politics may well take its toll on sterling again over the coming months. The next big date here is a UK by-election on 26 February. Should Labour lose its seat to Reform, more pressure will be heaped on PM Starmer and speculation will grow about a change of leadership after the local election results in May.” Monex head of macro research Nick Rees noted; "Sterling right now is benefiting from the distractions elsewhere in markets, but we think traders should be focused on the UK political situation, because that is really quite volatile." According to Rees; "What looks like an emerging Labour civil war is not great for confidence, it's not great for stability, it's not great for political decision-making." He added; "So you add all that up, we see downside sterling risks as soon as markets start paying attention."

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TAGS: Pound Euro Forecasts