British Pound to Euro Forecast: Bond Market Swings Drive GBP Volatility

Modified: Tuesday, 24 March 2026 08:01 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: Bond Market Swings Drive GBP Volatility

The Pound to Euro exchange rate (GBP/EUR) traded in a volatile range, holding around 1.1550 after briefly testing the 1.16 level, as sharp swings in UK bond yields dominated market sentiment.

While higher yields have offered intermittent support to Sterling, analysts warn that rising borrowing costs and energy-driven uncertainty could undermine the Pound if financial market stress intensifies.

GBP/EUR Forecasts: Consolidates Around 1.1550

The Pound to Euro (GBP/EUR) exchange rate found support close to 1.1520 on Monday and briefly spiked to highs near 1.16 before trading around 1.1550 amid very choppy trading conditions.

High yields could support the Pound, especially if risk appetite improves, although there will also be growing economic risks.

RBC Capital Markets (RBC) commented; “GBP yields remain at the upper range of G10, but increased FX volatility has made carry trades like GBP less attractive. Therefore, as a carry currency and net energy importer we think GBP is likely to suffer in the near-term.

After any initial losses, however, RBC forecasts that GBP/EUR will secure a limited advance to 1.1630 by the end of this year.

The FTSE 100 index initially posted a slide of over 2% before rallying to post a net gain.

The rally in risk conditions was triggered by comments from President Trump that there would be a delay of 5 days before any strike on Iran’s energy facilities. He also stated that talks had taken place and hinted that a widespread deal could be imminent.

The UK bond market will remain a key focus with the 10-year yield spiking to 18-year highs above 5.10% in early trading before a sharp retreat to around 4.85%.

Monex Europe head of macro research Nick Rees commented; "Our sense is that yields have risen past the point where further increases are likely to be constructive for the pound."

According to Rabobank senior FX strategist Jane Foley; "Since the start of the conflict, the pound has held up relatively well. We attribute this to the sharp turnaround in expectations regarding BoE policy."

She did, however, add; “the 2022 Liz Truss "mini budget" crisis showed that the pound can be vulnerable if longer-dated UK bonds tumbled.”

There will be significant data releases this week.

ING commented; “On the data side, UK inflation for February is published on Wednesday but should not matter much given the March developments so far. Tomorrow’s PMIs will be more interesting.”

As far as the PMI data is concerned, there are expectations that the manufacturing and services-sector data will both retreat slightly on the month amid an initial response to the Iran war.

RBC added; “Sterling's resilience will ultimately depend on both how quickly energy disruptions resolve and whether the MPC can credibly maintain an easing bias amid lingering inflation uncertainty.

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TAGS: Pound Euro Forecasts