British Pound to Euro Forecast: Short Covering Continues to Support GBP

Modified: Tuesday, 7 July 2026 12:21 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: Short Covering Continues to Support GBP

The Pound to Euro exchange rate (GBP/EUR) remained close to 12-month highs around 1.1680 as Sterling continued to benefit from improving market sentiment and the unwinding of long-held bearish positions.

While attention is increasingly turning towards the Labour leadership process and the composition of an expected Andy Burnham government, investors have so far taken comfort from the prospect of an orderly political transition and continued fiscal discipline.

GBP/EUR Forecasts: Holding Close to 12-Month Highs

The Pound to Euro (GBP/EUR) exchange rate has held a firm tone and traded around 1.1680 in early Europe on Monday.

ING commented on the recent Pound gains; “Helping that move were stale sterling shorts and a view that if volatility was falling this summer, there was no point in paying away 2% per annum in carry by being short sterling if FX pairs were going to remain relatively static.

It added; “It is hard to see that mindset being challenged this week.”

On a medium-term view, MUFG expects GBP/EUR losses to 1.1360 by the end of 2026.

Political developments will battle for attention with the football, but nominations for the Labour Party leader will open on Thursday.

Burnham remains the overwhelming favourite to win the election with the main focus on potential Cabinet appointments. In particular, the position of Chancellor will be crucial for economic policy and market sentiment.

ING commented; “The problem remains, however, that there is very little fiscal room for adjustment without raising taxes. This, along with our call that the Bank of England does not raise rates this year, could see sterling hand back some of its recent gains.”

There will also be concerns over the UK economic data with the construction PMI index recovering only slightly to 38.4 from 38.2 the previous month, although business confidence did improve to a 4-month high.

The Euro-Zone Sentix investor confidence index improved to -3.1 for July from -13.4 previously and compared with consensus forecasts of -14.5.

According to Sentix; “The economic outlook for the euro-zone is brightening noticeably, underpinned by a marked improvement in expectations and growing investor confidence. Germany, in particular, is providing a boost, as the latest political measures appear to be building confidence and noticeably lifting sentiment.”

German factory orders rebounded 1.9% for May after a revised 3.2% decline the previous month.

ING commented; “All in all, despite initial fears that the conflict in the Middle East would trigger new supply chain disruptions, German industry appears to have escaped with little more than a black eye.”

According to MUFG; “The resilience of the euro area economy is a supportive development for the euro and should help to limit further selling pressure. In addition, a faster-than-expected reversal of the energy price shock should improve investor sentiment towards both the euro area economy and the euro over the remainder of this year.”

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TAGS: Pound Euro Forecasts