Pound to Euro Forecast: GBP Resistance as Banks Warn on UK Yield Pressure

Modified: Friday, 30 January 2026 16:01 BST - Written by Tim Boyer

STORY LINK Pound to Euro Forecast: GBP Resistance as Banks Warn on UK Yield Pressure

The Pound to Euro exchange rate (GBP/EUR) has pushed toward four-month highs near 1.1560, but upside momentum is starting to stall as traders turn their focus to the UK bond market and rising gilt yields.

While higher yields can offer short-term carry support for Sterling, banks warn they also raise the risk of renewed volatility and political pressure, leaving GBP/EUR vulnerable if bond market stresses intensify.

GBP/EUR Forecasts: Near 4-Month Highs

The Pound to Euro (GBP/EUR) exchange rate strengthened to 1.1560 on Wednesday and close to 4-month highs before a limited retreat to near 1.1540 on Thursday.

Key resistance for the pair remains just above 1.1560, an area which has consistently held during January.

Higher UK yields could offer some support to the Pound through carry trades, but also pose important risks to Sterling sentiment and the outcome of this battle will be crucial for the currency..

ING expects a GBP/EUR retreat to 1.11 by the end of 2026.

The Euro to Dollar (EUR/USD) exchange rate remains close to 4-year highs and there has been further speculation that the ECB could take action to curb the Euro in global markets.

According to ING; “The debate about whether the euro's strength will affect ECB policy is intensifying.
It added; “For the moment, nothing is showing in ECB pricing. We suspect that markets will await any clarification in this sense by Lagarde at next Thursday’s meeting before buying into this narrative.”
Domestic and global developments will be key elements for the Pound.

UK equities made gains on Thursday with the FTSE 100 index close to record highs amid further support for the commodity sector.

Markets, however, will be watching the UK bond market closely amid a fresh increase in yields. The UK 10-year yield is trading around 4.56% and close to 2-month highs amid higher yields in the US and Japan.

The Pound will remain sensitive to longer-term bond yields given the impact on activity and debt interest payments for the government.

Over the past few months, the Pound has been vulnerable to selling pressure when UK bond yields have moved higher.

Immediate political tensions have eased with the focus on Prime Minister Starmer’s visit to China, but there are still major internal stresses within the Labour Party.

Higher bond yields will also tend to increase political pressure on the government.

According to Danske Bank; “Political noise can easily cause choppy UK markets, though, as we saw it last week, when Greater Manchester mayor Andy Burnham, who has got a radically different fiscal vision for the UK, reached out for a seat in parliament after Andrew Gwynne stepped down.”

It added; “The Labour Party blocked Burnham, a potential rival for PM Starmer, but it highlights how the fiscal position of the UK can easily become a market theme again this year.”

ING head of Forex strategy Chris Turner commented; “UK politics may well take its toll on sterling again over the coming months.,”

He added; “Sterling is also vulnerable to any further bond market pressure emanating from Japan or the U.S. In short, we think sterling is near the top of multi-quarter ranges.”

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TAGS: Pound Euro Forecasts