Pound Sterling to Euro Forecast: Can GBP Recover After Breaking Below 1.15?

Modified: Sunday, 17 May 2026 16:01 BST - Written by Ben Hughes

STORY LINK Pound Sterling to Euro Forecast: Can GBP Recover After Breaking Below 1.15?

The Pound to Euro exchange rate (GBP/EUR) slumped to fresh 5-week lows below 1.1460 on Friday as mounting speculation surrounding a potential leadership bid from Andy Burnham rattled UK markets and reignited fears over Britain’s fiscal outlook.

Sterling came under renewed pressure as investors reacted nervously to rising gilt yields and the prospect of a more left-leaning Labour leadership, although GBP/EUR later recovered modestly towards 1.1485.

GBP/EUR Forecasts: Dips to 5-Week Lows

The Pound to Euro (GBP/EUR) exchange rate dipped sharply to 5-week lows just below 1.1460 in Asian trading on Friday before a tentative recovery to 1.1485 amid increased political tensions.

ING commented; “The risk premium (EUR/GBP short-term overvaluation) is now 0.8%. It’s starting to look material, but remember that previous instances of intense political/fiscal concerns saw 2%+ risk premium. Risks remain on the upside for EUR/GBP. (GBP/EUR selling)

UK politics again dominated with the Pound under renewed pressure as Greater Manchester Mayor Burnham looked to regain a House of Commons seat and then challenge Prime Minister Starmer.

Markets are wary over the potential shift in fiscal policy if there is a change in leadership, especially as Burnham has previously warned against being in hock to bond markets. After a tentative rally in UK bonds on Thursday, there was renewed selling on Friday with the 10-year yield back above 5.10% from just below 5.00% on Thursday.

Jefferies economist Mohit Kumar commented; "Market's fear is that Burnham would be more left leaning, and we could see further increase in deficits. Our base case is one of a managed exit for Starmer and Burnham likely becoming the next PM."

There is still no formal leadership challenge to Starmer as Streeting resigned his position rather than launching a formal challenge. Burnham has announced that he wants to fight the Makersfield seat after the current MP announced that he will stand down.

If he is cleared to stand and wins the seat, he will be in a position to challenge for the Labour leadership, but there will inevitably be a tough fight for the seat and the process will take weeks.

MUFG commented; “while Burnham would not be a shoo-in, he would be in a reasonably strong position to win. It makes for an intriguing by-election given the strong shift favouring Reform shown in the local elections last week.”

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TAGS: Pound Euro Forecasts