Pound to Euro Week Ahead Forecast: GBP Targets 1.1925 as FX Volatility Collapses

Modified: Monday, 17 August 2026 07:01 BST - Written by James Fuller

STORY LINK Pound to Euro Week Ahead Forecast: GBP Targets 1.1925 as FX Volatility Collapses

The Pound to Euro exchange rate (GBP/EUR) has held close to 1.1700 as exceptionally subdued currency volatility continues to favour Sterling's attractive carry profile.

With G7 FX volatility falling to multi-year lows, investors have remained willing to hold higher-yielding currencies despite UK fiscal uncertainty and geopolitical risks, although banks remain sharply divided over whether the Pound can sustain its strength

GBP/EUR Forecasts: volatility collapses

Lloyds Bank sees scope for the Pound to Euro (GBP/EUR) exchange rate to strengthen to 1.1925 on technical grounds.

MUFG has closed its short GBP/EUR position for now, but is still looking to sell rallies with a target of 1.1360 by the second quarter of 2027.

GBP/EUR hit 2-week highs at 1.1720 during the week before settling around 1.1700.

The Pound has benefited from low volatility in global markets which has encouraged market interest in carry trades which underpinned the Pound.

Scotiabank commented; “FX volatility remains extremely subdued, and interest rate differentials have become quite compelling again—two key ingredients for profitable carry trades. Despite political uncertainty and some significant geo-political risk, JP Morgan’s G7 FX volatility index dropped below 6% in July to reach a six-year low.”

It added; “And perhaps ironically, geo-political fallout in the form of higher energy prices has helped foster a positive carry trade environment by injecting (some) hawkishness into G10 monetary policy.”

Lloyds Bank commented on the technical outlook; EUR/ GBP ’s extended bounce has run a little further than anticipated, but it hasn’t been enough to reconnect the market to its prior ranges. So, it remains a case of looking for opportunities to add to shorts. (Buying GBP/EUR dips)

It added; “Downside support now sits at 0.8541/46, through there space would open towards 0.8508, with the recent low at 0.8455 a little further out. Mid-term 0.8383/85 still looks reachable. (1.1925 for GBP/EUR) We’d maintain shorts.”

The latest UK GDP data was broadly in line with expectations with 0.4% growth for the second quarter of 2026 following 0.6% growth in the first three months of the year. June data beat expectations, but this was offset by a downgrade for May.

BBH commented; “the UK GDP prints are unlikely to shift the dial on BOE rate expectations. The UK inflation backdrop is a bigger concern for the BOE with the July CPI report due next week."

Monetary policy will be a key element. Rabobank senior strategist Jane Foley doubts that relative yields will provide strong Pound support; “Higher for longer oil prices may force the BoE to increase its tough talk against inflation, but so too would other central banks, suggesting that the forex reaction may still not favour the pound on all fronts.”

Fiscal policy will also be watched very closely. According to Rabobank "The market may be more forgiving if the government is borrowing to invest, but extra gilt supply will still have to be absorbed, and infrastructure projects are likely to take years before they raise capacity."

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts