Pound to Euro Forecast: UK Debt Fears, Strong Euro Data Weigh on GBP

Modified: Monday, 28 September 2026 07:01 BST - Written by James Fuller

STORY LINK Pound to Euro Forecast: UK Debt Fears, Strong Euro Data Weigh on GBP

The Pound to Euro exchange rate (GBP/EUR) has attempted to stabilise after falling to 12-week lows near 1.1610, with Sterling struggling against resilient Eurozone economic data and renewed concerns over the UK fiscal outlook.

Although UK yields have surged to 19-year highs, investors are increasingly treating higher borrowing costs as a risk to the Pound rather than an outright source of support.

GBP/EUR Forecasts: Euro-Zone resilience?

Goldman Sachs has a 12-month Pound to Euro (GBP/EUR) exchange rate forecast of 1.1360.

Goldman noted that the Pound has been resilient over the past few weeks. It added; “That recent stability likely extends for the next few weeks, but further ahead, we think the risks are skewed towards recent tailwinds petering out and a shift to GBP underperformance.”

In contrast, Credit Agricole expects GBP/EUR gains to 1.19 by the third quarter of 2027 with the threat of Euro losses.

During the week, GBP/EUR dipped to 12-week lows near 1.1610 before attempting to stabilise. Stronger than expected Euro-Zone data underpinned the Euro while debt fears hurt the Pound.

There was a further surge in bond yields as global bonds were subjected to sustained selling.

The UK 10-year yield hit fresh 19-year highs at 5.40% before a slight correction. Although higher yields offer potential Pound support, there will also be concerns over the impact on debt servicing and increased fiscal stresses. These concerns increased after a higher than expected figure for government borrowing for August.

Credit Agricole is concerned over a lack of confidence in the bond market; “As a result of the above developments, the correlation between the GBP and gilt yields has become sharply negative more recently. It highlights the growing GBP vulnerability to any renewed selloff in the gilt market on the back of energy price spikes and/or growing sovereign credit risks ahead of the Autumn statement.

Nevertheless, it added; “It should be mentioned, however, that a potential bout of GBP weakness should not extend to EUR/GBP, in part because, at present, the EUR is plagued by greater sovereign credit risks than the GBP.”

Bank of England expectations and developments will also be important. Markets are pricing in around a 75% chance that the BoE will increase rates at the November meeting and a total of four rate hikes on a 12-month view.

Goldman Sachs commented; “While our economists expect the Bank to hike rates in November, the bar to out-hawk broader market pricing appears to us to be particularly high. An under-delivery of BoE hikes should apply steady upward pressure on EUR/GBP in the months ahead.”

German and Euro-Zone business confidence data was stronger than expected for September and markets expect further ECB rate hikes.

Credit Agricole commented; “The Eurozone PMIs have recently surprised to the upside and thus have allowed the ECB to focus almost exclusively on bringing inflation under control.”

Nevertheless, it added; “We believe that the Eurozone rate market is already pricing in a very aggressive tightening cycle, however, especially given the continuing tightening of the broader financial conditions in the Eurozone.”

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TAGS: Pound Euro Forecasts