British Pound to Euro Forecast: Energy Shock Drives GBP Rebound

Modified: Tuesday, 3 March 2026 13:16 BST - Written by Tim Boyer

STORY LINK British Pound to Euro Forecast: Energy Shock Drives GBP Rebound

The Pound to Euro exchange rate (GBP/EUR) rebounded toward 1.1400 after sliding to 10-week lows as escalating tensions in the Middle East and a surge in global energy prices reshaped currency market dynamics.

With oil and gas prices jumping sharply following developments in Iran, investors are reassessing inflation risks, interest-rate expectations and the relative vulnerability of the UK and Eurozone economies to higher energy costs.

GBP/EUR Forecasts: Bounces from 10-Week Lows

The Pound to Euro (GBP/EUR) exchange rate slumped to10-week lows on Friday and re-tested this area on Monday before a limited correction to 1.1400 as risk conditions dominated.

According to Danske Bank; “For GBP, a mild risk-off scenario tends to be a positive. Combined with higher energy prices, this would exert downward pressure on EUR/GBP. However, if liquidity becomes scarce and risk sentiment deteriorates significantly, we would expect GBP to be among the losers.”

Choppy trading will continue in the near term while HSBC expects a limited net gain to 1.15 by the end of 2026.

The Pound was hurt by political developments on Friday as Labour lost the Gorton by-election while the jump in energy prices was a key element on Monday. There were also notable losses in UK equities on the day, limiting Pound support.

The Euro, however, will also be hurt by higher energy prices and markets will have to assess the relative outlook to drive currency moves.

Global developments are likely to dominate in the short term with the Middle East inevitably dominating headlines.

The Euro-Zone is vulnerable to higher energy costs. ING commented; “Higher energy prices will see investors re-appraise their view of a renaissance in European industry. That said, the global economy is in a much better position than it was when energy prices spiked in March 2022 and there is now more fiscal support than there was back then.”

UK natural gas prices also jumped over 25% on Monday with Brent Crude also jumping to fresh 7-month highs. A sustained increase in energy costs will have an important negative impact on the economy and there are also potential implications for interest rates..

The Bank of England will be watching energy prices closely and a sustained increase would make it harder to justify further rate cuts given the impact on inflation.

According to market pricing, the chances of a Bank of England rate cut in March have dropped to 68% from 80% last week.

The final reading for the UK PMI manufacturing index was revised down to 51.7 from the flash reading of 52.0, but still close to a 17-month high.

Rob Dobson, Director at S&P Global Market Intelligence “UK manufacturing has made an encouraging start to 2026.”

Mortgage approvals, however, dipped to a 2-year lows just below the 60,000 level for January.

Chancellor Reeves will release the latest economic forecasts on Tuesday, although the overall impact is likely to be limited.

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TAGS: Pound Euro Forecasts