British Pound to Euro Forecast: Starmer Resigns but Sterling Avoids Major Sell-Off

Modified: Tuesday, 23 June 2026 17:01 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: Starmer Resigns but Sterling Avoids Major Sell-Off

The Pound to Euro exchange rate (GBP/EUR) recovered from one-month lows near 1.1500 after markets reacted calmly to the resignation of Prime Minister Keir Starmer.

Pound Sterling stabilised as investors focused less on the leadership change itself and more on the implications for fiscal policy, government borrowing and the future direction of the UK economy under a new Labour leader.

GBP/EUR Forecasts: Recovers from 1-Month Lows

The Pound to Euro (GBP/EUR) exchange rate dipped to 1-month lows close to 1.1500 in Asian trading on Monday before recovering to 1.1540.

The resignation of Prime Minister Starmer caused only a limited ripple for the Pound, but moves in the bond market will be watched closely.

ING commented; “It signals that markets are relaxed about this government change, but that means a greater downside for the pound should fiscal concerns resurface.”

MUFG considers that yields will be a key issue; “Recent developments have contributed to yield spreads moving against pound, reinforcing our view that EUR/GBP will rise towards the upper end of its current trading range between 0.8600 and 0.8800. (GBP/EUR losses towards 1.1360.)

In a press conference after Monday’s open, Prime MInister Starmer announced that he will resign as Labour Party leader and nominations for a new leader will open on July 8th.

There are very strong expectations that Andy Burnham will be the next leader, either through a contested election or a coronation.

Bond-market developments will continue to be watched closely. The UK 10-year yield edged higher to 4.85% with little net chance in equities.

In this context, fiscal policy developments will be watched closely, especially with strong expectations that a new leader will replace Chancellor Reeves.

ING commented; “In May, Burnham’s comments about fiscal rules triggered a GBP and gilt selloff. Since then, he has adopted a more market-friendly tone on budget plans, resulting in a very contained market reaction to his winning a parliamentary seat last week, which allows him to become PM.”

It added; “The key test now for markets is the choice of Chancellor. Incumbent Chancellor Rachel Reeves has successfully mitigated market concerns via a strong commitment to the fiscal rule – markets will search for similar reassurances from her successor.”

MUFG noted reports that Burnham has sought the advice of several key advisers and added; “This helps to further ease concerns about the risk of a more disruptive shift to the left in policymaking.”

According to Monex Europe Head Of Macro Research Nick Rees,"Right now we’re rearranging the deckchairs on the Titanic. At the end of the day the UK political situation is dictated by its fiscal situation."

He did add; "The one caveat I would give to all this is I think markets could quite like Wes Streeting as chancellor. That’s an upside tail risk to the pound, I think markets could be pleasantly surprised.”

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TAGS: Pound Euro Forecasts