British Pound to Euro Forecast: Rising Gilt Yields Weigh on GBP

Modified: Wednesday, 15 July 2026 15:06 BST - Written by James Fuller

STORY LINK British Pound to Euro Forecast: Rising Gilt Yields Weigh on GBP

The Pound to Euro exchange rate (GBP/EUR) slipped back as UK government bond yields climbed above the 5.00% mark, reviving concerns that higher borrowing costs could eventually outweigh the Pound's yield advantage.

While elevated yields can support Sterling by attracting investors, markets are becoming increasingly wary that rising financing costs could reignite questions over the UK's fiscal outlook ahead of Andy Burnham's arrival in Downing Street.

GBP/EUR Forecasts: Edging Lower

Pound to Euro (GBP/EUR) exchange rate volatility has increased with a retreat to near 1.1410. The Euro regained ground after weaker than expected US inflation data while higher volatility could discourage Pound buying on yield grounds.

IG technical strategist Axel Rudolph considers that GBP/EUR will need to break below 1.17 to trigger significant selling pressure.

Credit Agricole expects a GBP/EUR retreat towards 1.1640.

The UK 10-year yield has moved to 7-week highs above 5.00% with bond markets on both sides of the Atlantic a key focus.

In this context, one key element for the Pound will be whether high yields are considered a positive or negative factor. Higher yields will tend to encourage Pound buying, but there will also be fears that higher yields will trigger fresh concerns over fiscal stability.

Political and fiscal developments will, therefore, be watched very closely with important implications for bonds and the Pound.

Andy Burnham will take over as Prime Minister on July 20th with the Cabinet appointments watched very closely. In particular the choice of Chancellor and hints over early policy proposals will be important for market sentiment.

BNY commented; "For GBP and gilt markets, the identity of the next chancellor is far more significant, as they’re looking at binary outcomes with respect to a significant deviation from the November budget or the broad status quo."

It added; "For gilt investors, we do not expect a major change in current flow dynamics: real rates are attracting strong domestic buying, but international interest is nonexistent."

Bank of England expectations will also be monitored closely ahead of the end-month policy decision. Next week, there will be important data releases with the latest reports on the labour market and inflation.

Given the renewed increase in energy prices, markets are now pricing in two rate hikes this year which would take rates to 4.25%, although the narrative could change quickly.

ING commented; “We very much doubt the BoE will deliver on any of the BoE tightening priced in by the market.”

Credit Agricole added; “the current market BoE outlook is too hawkish and the GBP should continue to lose its rate advantage over the EUR, in our view.”

As far as data is concerned, the British Retail Consortium (BRC) reported like-for-like annual sales growth of 1.7% for June from 3.4% previously and below consensus forecasts of 2.6%.

BRC Chief Executive Helen Dickinson noted that the heatwave triggered strong strong demand for some goods, but added; “the lure of the sunshine meant that gaming and big ticket sales struggled.”

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TAGS: Pound Euro Forecasts