British Pound to Euro Forecast: Bond Sell-Off Pushes GBP Off 12-Month Highs

Modified: Tuesday, 14 July 2026 13:31 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: Bond Sell-Off Pushes GBP Off 12-Month Highs

The Pound to Euro exchange rate (GBP/EUR) eased back from 12-month highs near 1.1750 as a sharp rise in UK government bond yields and renewed geopolitical tensions prompted investors to lock in recent Sterling gains.

Although the Pound remains well supported by improving political sentiment, markets are becoming increasingly sensitive to any signs of fiscal stress ahead of Andy Burnham's expected arrival in Downing Street.

GBP/EUR Forecasts: Retreat from 12-Month HIghs

The Pound to Euro (GBP/EUR) exchange rate was unable to make headway on Monday and retreated to around 1.1720 from a 12-month high close to 1.1750 last week.

Risk conditions were less confident during the day with unease surrounding the Middle East situation triggering weaker global equities, although the FTSE 100 index traded flat after the New York open.

The Pound remains sensitive to global risk appetite, especially as the currency has tended to benefit from relatively high yields when conditions are benign.

HSBC notes uncertainty surrounding the long-term outlook but, at the moment, forecasting GBP/EUR at 1.15 by the end of 2026.

Overall moves were still relatively limited. MUFG commented; “The spill-over effects into the foreign exchange market remain relatively modest so far.”

Domestically, Burnham will be appointed as Prime Minister on July 20th with the immediate focus on Cabinet appointments. In particular, the position of Chancellor and potential economic policies will be a key element. Latest reports suggest there are likely to be extensive policy measures in an Autumn budget with any leaks on personnel monitored closely over the next few days.

There was significant selling in UK bonds on Monday with the 10-year yield jumping to 4.96% from 4.88% on Friday and close to 7-week highs.

Any increase above 5.00% would risk fresh market concerns surrounding the underlying UK fiscal position.

Scotiabank noted that sentiment still appears relatively firm; “The options market appears to be signaling little in terms of risk at the moment however, with a considerable softening in the premium for downside protection since PM Starmer’s resignation on June 22nd.”

Neverthe;less, the bank still pointed to underlying risks; “The UK’s fiscal situation remains a key concern for market participants, posing a material risk to the Gilt market.”

According to HSBC; “If fiscal rules are respected and gilts remain calm, GBP continues to trade largely on cyclical drivers: BoE pricing, global risk sentiment and relative rates.”

HSBC also commented on the longer-term outlook; “If Burnham meaningfully reduces the uncertainty discount and mobilises private-sector liquidity into productive investment, trend growth expectations can reprice higher and attract stickier long-term capital. That's the route to a more durable GBP upside, not a one-off Burnham bounce, but a regime shift.”

The latest GDP data is due for release on Thursday with consensus forecasts of a 0.1% gain for May following a 0.1% contraction for April.

The latest jobs and inflation data due next week will attract more attention with the possibility that there will be an impact on expectations for the July 30th Bank of England policy decision.

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TAGS: Pound Euro Forecasts