British Pound to Euro Forecast: High UK Yields Push GBP to Two-Week Highs

Modified: Tuesday, 15 September 2026 12:46 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: High UK Yields Push GBP to Two-Week Highs

The Pound to Euro exchange rate (GBP/EUR) climbed to two-week highs near 1.1690 as another surge in UK bond yields reinforced Sterling's interest-rate advantage.

UK 10-year yields have reached fresh 19-year highs around 5.35%, but the move is increasingly double-edged for the Pound, with attractive carry support offset by mounting concerns over borrowing costs, fiscal policy and the economic impact of tighter financial conditions.

GBP/EUR Forecasts: Hit 2-Week Highs

The Pound to Euro (GBP/EUR) exchange rate posted net gains to 1.1675 on Monday after hitting 2-week highs close to 1.1690.

The Pound continued to gain net support from elevated yields as UK bond yields continued to move higher.

There will, however, be notable Pound risks if there is a further sell-off in bonds, especially given the fiscal implications.

In this context, bond markets will continue to be monitored closely. The UK 10-year yield surged to fresh 19-year highs around 5.35%.

Developments in bond markets will also have important implications for the Bank of England (BoE). Consensus forecasts are for the BoE to leave rates on hold at 3.75%, although there will inevitably be a split vote.

Goldman Sachs has changed its position. It still expects the BoE will hold rates at 3.75% this week, but is now expecting a rate hike at the November meeting.

According to the bank; "Recent weeks have seen significant increases in wholesale energy prices, a larger rise in headline inflation than the Bank had expected, and strong growth data.”

Rabobank expects a 6-3 vote for holding rates at 3.75% at the September meeting. It added; “We expect Bank Rate to remain at 3.75% through the remainder of 2026. The renewed rise in energy prices by itself does not create a compelling case for tightening. The domestic economy is still soft, underlying inflation is softening and markets are already delivering a substantial tightening in financial conditions.”

It did add; “Clearly, the risks are asymmetric. Further escalation in the Middle East, a sustained rise in energy (product) prices or clearer second-round effects could push the MPC towards a hike later this year. At some point the MPC simply have to signal that they are on the ball. But even in such a scenario, we think four hikes in the next 12 months, as priced in money markets right now, are unlikely.”

Barclays interest rate strategist Moyeen Islam noted the risk of a hike; "Given the speed of the move and the hardening of central bank rhetoric, a surprise 25 basis-point rate hike cannot and should not be ruled out."

Wider economic conditions will also be a key element.

Deutsche Bank chief UK economist Sanjay Raja notes some positive signs; "The UK growth story is becoming harder to ignore, households and businesses are still spending – despite the unfolding energy shock impacting disposable incomes."

He did add; “Britain's economy has fared better than expected in the face of rising energy costs due to the Iran war, but the threat to growth still lingers.”

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TAGS: Pound Euro Forecasts