British Pound to Euro Forecast: German Confidence Jump Keeps GBP Below 1.1

Modified: Thursday, 27 August 2026 16:06 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: German Confidence Jump Keeps GBP Below 1.1

The Pound to Euro exchange rate (GBP/EUR) failed to break above 1.1700 as a stronger-than-expected surge in German business confidence provided fresh support for the Euro.

The Sterling remained underpinned by calmer bond markets and lower energy prices, but evidence of improving German economic momentum has made further near-term GBP/EUR gains more difficult.

GBP/EUR Forecasts: Retreat below 1.1680

The Pound to Euro (GBP/EUR) exchange rate was unable to make a fresh challenge on 1.17 on Tuesday and retreated to below 1.1680 on Wednesday.

Confirmation of a further increase in retail energy prices from October will maintain some concerns over weaker growth and higher inflation which would increase complications for the Bank of England.

The Euro also gained net support from on-going hopes that Euro-Zone economic growth will be stronger than expected, reinforcing a hawkish ECB stance.

According to Rabobank, the Pound will be more vulnerable later in the year; "We expect further range trading in EUR/GBP over the coming weeks, with a mild upside bias later in the year as fiscal realism weighs and BoE rate hike risk is further priced out."

The bank maintains a 3-month GBP/EUR forecast of 1.15.

On Wednesday, OFGEM announced that the retail energy price cap will increase 4% from October and current indications are that there will be a further increase in January.

The increase will make a wider decline in inflation less likely and potentially maintain upward pressure on bond yields which will also maintain pressure on debt-interest payments.

Rabobank commented; "While stronger than expected UK growth may counter some of the concerns about the state of the Treasury’s coffers, it cannot detract much from the limitations of the fiscal rules, nor from the recent jitters in global government debt markets."

It added; "While tax hikes could have growth limiting implications, they would at least protect the government’s fiscal rules and settle the nerves of the gilt market."

The Euro-Zone outlook will also be a key element. According to ING; “Eurozone data releases continue to surprise to the upside. And what is the big surprise is how resilient the eurozone economy has been in the face of this year's rise in energy prices. In fact, the ECB's Isabel Schnabel has today suggested that at September's meeting, the ECB might have to characterise growth risks to the upside.”

It added; “These comments should cement expectations for a 25bp rate hike to 2.50% at the September meeting and can probably retain market pricing of another 25bp hike into early next year.”

Danske Bank noted that there will be some impact from the drought conditions across much of continental Europe.

It added; “As the heatwave shock is much smaller than the Hormuz shock, we do not expect it to trigger a third hike beyond our forecast of a final 25bp increase in September. However, it is likely to reinforce the hawkish tone in ECB communication in the coming period.

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TAGS: Pound Euro Forecasts