Pound-to-Euro Forecast: GBP/USD Tests 1.16 Resistance as Bond Yields Surge

Modified: Thursday, 12 March 2026 09:38 BST - Written by Tim Boyer

STORY LINK Pound-to-Euro Forecast: GBP/USD Tests 1.16 Resistance as Bond Yields Surge

The Pound to Euro exchange rate (GBP/EUR) remained firm near 1.1575, hovering close to five-week highs, as rising UK bond yields and shifting Bank of England policy expectations continued to underpin Sterling.

Markets have rapidly scaled back expectations of near-term rate cuts following the recent surge in energy prices, helping the Pound outperform even as equities weaken and speculation grows that the European Central Bank could consider further tightening.

GBP/EUR Forecasts: Close to 5-Week Highs,/h3>

Pound-Euro found support on dips and is trading around 1.1575, close to 5-week highs. The pair also remains significantly higher than levels before the US attacks on Iran. Further tough resistance comes in around 1.16.

ING sees Bank of England chatter as overblown and is not backing further Pound gains; “We continue to favour a return to 0.870 rather than a drop to 0.860.” (This converts to a GBP/EUR drop to at least 1.15)

Equities lost ground on Wednesday which hampered the Pound to some extent and there has been an increase in speculation over an ECB rate hike, but Sterling remains resilient.

Chatter surrounding interest rates and energy-price developments remain key elements. As far as UK data is concerned, the next GDP release is due on Friday with expectations of 0.2% growth for January.

Save on Your GBP/EUR Transfer

Get better rates and lower fees on your next international money transfer. Compare TorFX with top UK banks in seconds and see how much you could save.

Compare the Best GBP/EUR Rates »

There has been renewed selling in gilts on Wednesday with the 10-year bond yield above 4.60% from a Tuesday close near 4.50%.

Markets have ruled out a near-term Bank of England (BoE) rate cut and are less confident over a cut over the next few months. This shift has been triggered by stronger energy prices, although volatility remains intense.

ING commented on higher UK yields; “The move does, however, start to look a bit stretched according to our short-term valuation metrics, and the decline in oil prices below $90 today may well encourage some dovish re-assessment in UK rate expectations and prompt a correction higher in EUR/GBP.

MUFG commented on the outlook; “The MPC will certainly be more wary of cutting rates given the fact that there are already a number of hawks who were concerned, prior to this energy price spike, about the continued stickiness of underlying inflation.”

The bank notes mixed implications; “Yield certainly appears to be providing the pound with support but whether that would persist is questionable given the potential hit to real incomes.”

Higher yields will also trigger fresh concerns surrounding the fiscal outlook.

There will be no immediate impact on utility prices until the July change in the OFGEM price cap. Indeed, prices will decline in April.

MUFG did, however, note; “Mortgage rate increases and petrol pump price increases will happen quickly.”

ECB policy expectations will also be monitored closely. ING noted; “This morning, we heard a more aggressively hawkish remark by Governing Council member Peter Kazimir, who said a rate hike on the back of the Iran conflict may be closer than thought.”

Bank President Lagarde also stated that the bank would not tolerate a repeat of the 2022/23 jump in inflation. Following the comments, markets are pricing in a 60% chance of a rate hike by June.

Like this piece? Please share with your friends and colleagues:

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts