Pound to Euro Week Ahead Forecast: Markets Eye Starmer's Future

Modified: Monday, 1 June 2026 07:01 BST - Written by James Fuller

STORY LINK Pound to Euro Week Ahead Forecast: Markets Eye Starmer's Future

The Pound to Euro exchange rate (GBP/EUR) remains highly sensitive to UK political developments, with investors increasingly focused on the potential implications of the upcoming Makerfield by-election and any subsequent Labour leadership contest.

While immediate political tensions have eased, markets continue to assess how a change in leadership could influence fiscal policy, economic growth and Sterling sentiment over the medium term.

GBP/EUR Forecasts: Politics priced in?

Credit Agricole considers that the Pound to Euro (GBP/EUR) exchange rate could slide to 1.11 on a 12-month view if Greater Manchester Mayor Burnham wins the Makerfield by-election and successfully challenges Prime MInister Starmer.

In contrast, if Streeting manages to win a leadership election and become Prime Minister it sees the potential for GBP/EUR to strengthen sharply to 1.22 by the middle of next year.

Political developments were limited during the week with the House of Commons not sitting.

ING commented; “The pound appears to have largely priced out political risk over the past 10 days. We estimate that the EUR/GBP political risk premium (short-term overvaluation) peaked at around 1% on 15 May and has since been unwound back to zero.”

According to the bank; “This mainly reflects decreased media attention on the topic and the difficulty in pinning down the timing of any leadership challenge. With Prime Minister Keir Starmer pledging to fight on, the most plausible window for a new candidate to emerge would be around September, after a leadership challenge through the summer. Against a backdrop of heavy external headlines, that risk is not especially easy to price into FX at this stage.”

Speculation will inevitably intensify ahead of the June 18th Makerfield by-election. Credit Agricole discusses the potential political outcomes and market impact.

According to the bank; “We expect the Burnham government to keep most of the current official fiscal commitments and thus avoid gilt market turmoil. This should still be the worst outcome for the GBP, and we expect fears about UK growth to weigh on the currency.”

Credit Agricole discussed potential upside for the currency; “Wes Streeting is Labour’s new leader and focuses on maintaining the status quo on the fiscal policy front while seeking faster deepening of the relationship with the EU. While the UK growth outlook should remain weak this year, Streeting’s policies could be seen as growth-positive for 2027 and beyond. This should thus be the most positive outcome for the GBP.”

If Starmer manages to survive, the bank expects a middle way for the Pound.

Goldman Sachs maintains a negative stance on the Pound; “Structural Sterling overvaluation and elevated BoE hike pricing should apply downward pressure to the currency over the months ahead, and recent increase in borrowing costs and energy pressures from an already-precarious starting position for fiscal policy uncertainty to be priced on top of.”

UBS, however, is positive on the Pound outlook; “We continue to view Sterling as undervalued and under-owned, and expect a rebound in the coming months, particularly as political uncertainty fades.”

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