British Pound to Euro Forecast: High UK Yields Keep GBP Above 1.165

Modified: Wednesday, 16 September 2026 18:16 BST - Written by Minesh Chaudhari

STORY LINK British Pound to Euro Forecast: High UK Yields Keep GBP Above 1.165

The Pound to Euro exchange rate (GBP/EUR) has remained firmly supported around 1.1680 as UK yields continue to rank among the highest in the G10.

Pound Sterling's carry advantage is providing protection despite a softer labour market, but the Bank of England faces an increasingly difficult policy decision as markets price four or more rate hikes while domestic wage pressures continue to ease.

GBP/EUR Forecasts: Holding Around 1.1650

The Pound to Euro (GBP/EUR) exchange rate has continued to find support on dips and is trading just above 1.1680.

At this stage, high UK yields are continuing to underpin the Pound despite concerns surrounding the economic implications of the bond sell-off.

MUFG commented; “Rising yields in the UK which are amongst the highest in offer in the G10 are helping to support the pound while growth holds up.”

ING commented on the Pound outlook; “We struggle to see EUR/GBP falling much further from here. Most risks appear on the upside in the coming weeks, from the monetary policy story mentioned above to potential fiscal headlines ahead of the late October budget to growing pressure on Downing Street to allow independence referendums in Scotland, Wales and Northern Ireland.

It added; “Our target remains 0.87 for EUR/GBP.”(1.15 for GBP/EUR)

There are expectations that the Bank of England (BoE) will hold interest rates at the latest policy meeting. There has, however, been a further shift in market pricing with traders pricing in at least four and potentially five rate hikes by the middle of next year.

The jump in bond yields and further upward pressure on energy prices will cause major complications for the central bank. There were media reports that the BoE will stop selling long-dated bonds given the recent jump in yields.

There will inevitably be a split vote within the BoE and potentially a narrow vote for the decision. There is a strong consensus that rates will be held at 3.75%, but with scope for hawkish language and a warning that rates are liable to increase in November.

ING commented; “Unlike the ECB, we suspect BoE doves will hold their ground and stress that there is no evidence price pressures are extending beyond energy prices. We also see some risk that Governor Andrew Bailey himself pushes back against aggressive market pricing.”

MUFG did add; “Weakness in the labour market could curtail the scale of tightening the BoE is willing to deliver.”

The UK unemployment rate held at 4.9% in the three months to July. According to the ONS, the number of people on payrolls declined a provisional 26,000 for August after a revised 19,000 drop the previous month.

Headline average earnings growth slowed to 3.9% from 4.2% while the underlying increase held at 3.5% with both figures in line with consensus forecasts.

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TAGS: Pound Euro Forecasts