British Pound to Euro Forecast: GBP/EUR Tests 1.16

Modified: Friday, 20 March 2026 13:01 BST - Written by Tim Boyer

STORY LINK British Pound to Euro Forecast: GBP/EUR Tests 1.16

The Pound to Euro exchange rate (GBP/EUR) edged higher toward 1.1590 after the Bank of England delivered a hawkish hold, prompting markets to price in potential rate hikes and boosting Sterling.

However, gains remain capped below the key 1.16 resistance level, with volatility elevated as rising bond yields, energy prices, and cautious central bank messaging keep traders on edge.

GBP/EUR Forecasts: GBP Still Faces 1.16 Resistance

The Pound to Euro rate has secured limited net gains to 1.1590 on Thursday as traders digest interest rate decisions and a fresh spike in energy prices.

Crucially, traders moved to price in at least two and potentially three Bank of England (BoE) rate hikes which underpinned the Pound, but there will inevitably be very nervous trading amid a fresh slide in bond and equity markets.

GBP/EUR still needs to break above 1.16 to secure a firmer base and the potential for further gains.

ING does not expect the current expectations to stick; “Our end-Q2 target is 0.88 (1.1360 for GBP/EUR), which also embeds some political risk associated with May's local elections.”

The Bank of England (BoE) held interest rates at 3.75% at the latest policy meeting, in line with consensus forecasts. There was a 9-0 vote for no change compared with expectations that a couple of members would continue to back a cut in rates.

The bank emphasised that it was alert to the risks of second-round effects from the spike in energy prices while also noting that there was a high degree of uncertainty.

The statement overall was slightly more hawkish than expected and markets responded by pricing in two rate hikes by the end of 2026.

The UK bond market will be a key focus, especially as another spike in energy prices, allied with the BoE statement, triggered renewed selling in gilts.

The 10-year yield jumped to a 6-month high above 4.80% and close to January levels which led to a Pound sell-off.

MUFG commented; "The message is more hawkish than the market had been anticipating, with the BoE indicating that if the energy price shock looks to be more persistent then they have to act to tighten policy to stop inflation expectations becoming unanchored.”

According to Aberdeen Deputy Chief Economist Luke Bartholomew; “With today’s labour market data showing wage growth is continuing to moderate, there is certainly a strong case for bringing rates down eventually.”

It added; “So while the hurdle to a return to rate hikes is very high, the economy could be facing a long wait until the next cut.”

ING commented; “The Bank of England's unquestionably hawkish decision to hold rates has opened the door to future hikes if energy prices stay elevated. Yet we'd be careful in drawing clear signals from today's move, which also floated the possibility of faster rate cuts. Under ING's base case energy scenario, we think the most likely path forward is a prolonged pause.”

The Pound also retreated from highs after BoE Governor Bailey stated that markets were getting ahead of themselves in assuming rate hikes.

The ECB held the deposit rate at 2.00% with the central bank stating that rate decisions would be determined by inflation assessments.

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TAGS: Pound Euro Forecasts