Pound-to-Euro Forecast: 1.17 Barrier Holds as BoE Hike Doubts Grow

Modified: Friday, 31 July 2026 09:01 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: 1.17 Barrier Holds as BoE Hike Doubts Grow

The Pound to Euro exchange rate (GBP/EUR) recovered to around €1.1680 on Thursday evening, although Sterling remained unable to regain the important 1.1700 level following the Bank of England’s latest policy announcement.

The BoE delivered a more divided vote than markets had expected, but MUFG and Rabobank both warned that the central bank’s wider message still suggested policymakers were prepared to wait before raising interest rates again.

GBP/EUR Forecasts: 1.17 Resistance Holds

GBP/EUR was trading around 0.2% higher on the day near 1.1680, recovering after three consecutive daily declines.

The pair nevertheless remained around 1.25% below July’s high of 1.1827, with initial support located near 1.1650 followed by the 1.1600 area.

A sustained move above 1.1700 would ease immediate pressure and bring 1.1760 back into focus, while another failure at this level would leave the Pound vulnerable to renewed selling.

The Bank of England voted 6–3 to leave Bank Rate unchanged at 3.75%, with Huw Pill, Megan Greene and Catherine Mann preferring an immediate increase to 4.00%.

The split initially appeared supportive for Sterling, but the majority noted there was “little evidence so far” of stronger second-round inflation effects and “clear signs of underlying disinflation in recent data”.

Rabobank advised investors to look beyond the headline vote, commenting; “Ignore the vote surprise, guidance a little less hawkish, Committee happy to keep waiting.”

The bank considers a September rate increase unlikely and expects Bank Rate to remain at 3.75% through the end of 2027.

Rabobank also forecasts EUR/GBP at 0.87 on a three-month view, which would imply a Pound to Euro rate close to 1.1495.

MUFG also warned that the vote split alone would not be sufficient to generate sustained Pound buying.

According to MUFG; “We will need to see increased conviction on a September rate hike” for UK market rates and Sterling to move higher.

The bank warned that a further decline in September hike expectations could lift EUR/GBP above 0.8590 and towards July’s high near 0.8619.

Converted into Pound to Euro terms, those levels would equate to GBP/EUR falling towards approximately 1.1640 and 1.1602 respectively.

The Euro received support from stronger-than-expected regional data, with the Eurozone economy expanding 0.4% during the second quarter after stagnating during the first three months of the year.

Germany’s economy also grew by 0.2%, while preliminary inflation accelerated to 2.8% in July as energy inflation increased sharply.

The combination of firmer activity and higher headline inflation strengthened expectations that the European Central Bank will retain a cautious stance towards further monetary tightening.

Crédit Agricole is also cautious on the near-term Sterling outlook, forecasting EUR/GBP at 0.86 in September and December, equivalent to GBP/EUR near 1.1630.

The bank nevertheless noted that “some negatives are already priced into the GBP especially versus the EUR”, with the Eurozone also vulnerable to the economic impact of higher energy prices.

Near-Term GBP/EUR Forecast: Eurozone Inflation Could Trigger 1.16 Test

Looking ahead, Friday’s preliminary Eurozone inflation release is likely to provide the next significant catalyst for the Pound Euro exchange rate.

A firm headline reading, particularly if accompanied by persistent underlying inflation, could reinforce expectations of another ECB interest-rate increase and push GBP/EUR towards 1.1640.

A break below this level would expose the 1.1600 area, while softer core inflation could weaken the Euro and allow the pair to recover above 1.1700.

The three votes for an immediate BoE rate hike should limit the scope for aggressive Sterling selling.

Nevertheless, unless markets become more confident that the Bank will raise rates in September, GBP/EUR advances above 1.1700 may continue to attract selling pressure.

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TAGS: Pound Euro Forecasts