British Pound to Euro Forecast: GBP Resilient Despite Fading BoE Rate-Hike Bets

Modified: Tuesday, 2 June 2026 07:01 BST - Written by Admin

STORY LINK British Pound to Euro Forecast: GBP Resilient Despite Fading BoE Rate-Hike Bets

The Pound to Euro exchange rate (GBP/EUR) pushed back above the 1.1550 level on Monday as Sterling continued to outperform despite a notable scaling back of Bank of England rate-hike expectations. Markets are increasingly betting that policymakers will move cautiously in the face of weakening economic activity, but the Pound has remained supported by relatively high UK yields, lingering inflation concerns and renewed pressure on the Euro from slowing Eurozone growth.

GBP/EUR Forecasts: Edges Higher

The Pound to Euro (GBP/EUR) exchange rate has strengthened to just above 1.1550 on Monday with the Pound again demonstrating resilience in global markets despite fading expectations of aggressive Bank of England (BoE) interest rate hikes.

Higher oil prices have also had some impact in underpinning the Pound against the Euro while UK data releases were mixed.

ING commented; “The removal of an aggressive BoE tightening cycle has not heavily weighed on sterling.” The bank still expects notable GBP/EUR selling pressure on any move to above the 1.1600 level.

UBS is more positive on the outlook; “We view sterling as undervalued and expect a rebound as uncertainty fades.”

In comments late last week, BoE Governor Bailey downplayed the potential for interest rate hikes and markets are now pricing in one rate hike this year with around a 30% chance of a second hike.

The bank will still face important trade-offs between intense cost pressures and weaker activity.

The UK PMI manufacturing index increased to a 4-year high of 53.9 for May from 53.7 in April.

There was further upward pressure on costs with the fastest rate of increase in output charges since April 2022.

Rob Dobson, Director at S&P Global Market Intelligence commented; “May saw the UK manufacturing upturn gather pace, as growth of production and business optimism both rose to three-month highs. "

He added; “The sustainability of the upturn remains in doubt, however. The recent upturn in new order intakes that is driving the expansion in output is heavily reliant on both manufacturers and their clients front-loading purchases to mitigate expected war-related price increases and supply chain disruption. This bounce will fade once customers have built up sufficient safety stocks.”

As far as the housing market is concerned, Nationwide reported a decline in house prices of 0.6% for May after a 0.4% increase the previous month with the year-on-year increase slowing to 1.7% from 3.0%.

Robert Gardner, Nationwide's Chief Economist commented; “Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates, some loss of momentum was to be expected. Indeed, consumer confidence has weakened noticeably since the start of the conflict, with GfK’s headline index falling to its lowest level since late‑2023 in April, with only a marginal increase in May.”
He noted that affordability measures are still improving and added; “This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short lived.”

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TAGS: Pound Euro Forecasts