Pound to Euro Week Ahead Forecast: Downside Risks for GBP

Modified: Monday, 9 February 2026 07:01 BST - Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: Downside Risks for GBP

The Pound to Euro exchange rate (GBP/EUR) lost momentum after a dovish Bank of England decision reinforced expectations for earlier rate cuts, while renewed political uncertainty in the UK has revived downside risks for Sterling against the single currency.

A narrow BoE vote split, softening labour-market signals and fresh pressure on Prime Minister Starmer have shifted near-term focus back to policy divergence, leaving GBP/EUR vulnerable after failing to sustain 5-month highs.

GBP/EUR Forecasts: Dovish BoE

MUFG forecasts that the Pound to Euro (GBP/EUR) exchange rate will weaken to 1.11 at the end of 2026.

On a short-term view, ING commented; “Our bias over the next month is towards 0.88 (GBP/EUR losses to 1.1360) as political pressure remains on Starmer and data slowly adds to the case for a March BoE rate cut.”

GBP/EUR hit 5-month highs above 1.16 early in the week on an unwinding of long Euro positions before sliding to 2-week lows below 1.15 before settling just above this level.

The Pound was undermined by economic and political developments during the week with Prime Minister Starmer embroiled in a fresh scandal surrounding Peter Mandelson while the Bank of England (BoE) surprised traders with a dovish decision.

Macquarie takes a similar view to ING on the short-term outlook; “the EUR is all of a sudden looking much better than the GBP, despite its yield disadvantage, and we think that EUR/GBP cross could rally back up to 0.88 in very short order.

The ECB held the deposit rate at 2.00% with no formal guidance on the next moves.

The Bank of England held interest rates at 3.75%, in line with strong consensus forecasts. There was, however, a narrow 5-4 vote for the decision with the four dissenters calling for a further 25 basis-point cut.

Bailey and Mann, who backed no change in rates also indicated that the decision was a close call amid reduced inflation risks.

Given the vote split, markets were more confident in a March rate cut and priced in two cuts from 2026.

MUFG remains concerned over the economic backdrop; “We now expect 0.2% QoQ GDP in Q4, a decent outcome given all the budget uncertainty that prevailed at the time. But job losses have now been recorded for four consecutive months and will ensure downward pressure on wage growth.”

It added; “We are currently forecasting two more cuts this year but can’t rule out a third later this year.”

Credit Agricole is more constructive on the Pound; “Given the extent of BoE dovishness priced in by now, however, we think that potential positive economic surprises would have a stronger FX impact than economic disappointments.”

Political developments were also important during the week with fresh allegations surrounding Mandelson’s relationship with Epstein putting further pressure on Prime Minister Starmer’s decision to appoint him as US ambassador in 2024.

Events increased speculation that there would be a Labour Party challenge on Starmer. These fears unsettled the UK bond market and Pound.

MUFG commented on the dilemma faced by Labour MPs; “Fiscal risks have receded notably and the Gilt market has outperformed. MPs will be aware of the risk of destabilising markets again, which could act as a deterrent. Still, a challenge would certainly lift expectations of a shift to the left and prompt renewed instability in Gilts that would see the pound suffer.”

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TAGS: Pound Euro Forecasts