British Pound-to-Euro Forecast: 1.1650 Support Remains Crucial

Modified: Sunday, 30 August 2026 15:01 BST - Written by James Fuller

STORY LINK British Pound-to-Euro Forecast: 1.1650 Support Remains Crucial

The Pound to Euro (GBP/EUR) exchange rate recovered into the end of last week, closing Friday around 1.1685 after finding support below 1.1650 earlier in the week.

Sterling remains hampered by a gradual shift in Bank of England rate expectations, with markets no longer fully pricing a rate increase this year.

In contrast, investors are increasingly confident that the European Central Bank will raise rates in September, leaving the relative policy outlook as an important headwind for GBP/EUR.

Energy prices will remain a key short-term influence, especially given their impact on inflation and central-bank expectations.

European LNG prices remain close to their highest levels since early 2023 as supply through the Strait of Hormuz stays restricted and storage levels remain unusually low.

Further increases would intensify stagflation concerns across both the UK and Euro area, although Europe remains particularly exposed to imported gas costs.

ING commented; “Energy prices inched higher yesterday after a report suggested the Kremlin is planning a new escalation in the Ukraine war after negotiations for a peace deal reached an end.”

Higher gas prices would push retail inflation higher and add to wider cost pressures, while simultaneously weighing on growth and complicating central-bank decisions.

BoE Hike Expectations Drift into 2027

Traders had consistently priced at least one Bank of England rate hike before year-end earlier in August, but that conviction has faded.

Markets now price only around 24 basis points of tightening by the December meeting, with a full quarter-point increase not priced until February 2027.

The September meeting carries only a modest probability of a rate increase.

IG Markets chief market analyst Chris Beauchamp does not expect the Bank of England to tighten this year.

According to Beauchamp; “It would probably make life unnecessarily tricky for the UK economy and certainly for the government as well. The approach will be to cross your fingers and hope that oil continues to stay at least contained at these levels.”

The ECB faces a different backdrop.

Markets are pricing almost a full 25-basis-point increase for September, while persistent energy risks and resilient Eurozone activity could keep further tightening in play.

MUFG commented; “Whatever the reality is, price action again suggests LNG traffic remains more subdued and that could have implications for monetary policy in Europe. Resilient economic data and upside inflation risks could result in the ECB hiking again beyond September.”

UK Fiscal Risks Return to Focus

UK fiscal policy will also become an increasingly important influence on Sterling as parliament returns from recess and attention shifts towards the autumn Budget.

The debate over how the government funds its policy programme is likely to intensify, particularly with gilt yields still elevated and borrowing already running above earlier forecasts.

There has been further speculation that the Burnham government could turn to additional tax increases.

IG’s Beauchamp commented; “People expect a government that will look to find new ways to raise taxes and to try and fulfil what it wants to do.”

He added; “It's going to be a hard sell for this government to sort of maintain this credibility angle that they were so big on just a few weeks ago.”

For GBP/EUR, 1.1650 remains the key downside support area.

A sustained break below this level would increase the risk of a move towards 1.1600, while a recovery above 1.1700-1.1720 would ease the immediate downward pressure.

The wider balance still favours the Euro unless BoE expectations turn more hawkish again or energy prices fall sharply enough to weaken the ECB tightening case.

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