British Pound to Euro Forecast: High UK Yields Push GBP Above 1.1650

Modified: Tuesday, 29 September 2026 16:01 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: High UK Yields Push GBP Above 1.1650

The Pound to Euro exchange rate (GBP/EUR) has climbed back above 1.1650 as elevated UK yields and fresh assurances over fiscal discipline provided Sterling with support.

Markets continue to price a high probability of a November Bank of England rate hike, although concerns remain that the combination of expensive borrowing, elevated energy costs and weaker growth will become increasingly difficult for the UK economy to absorb.

GBP/EUR Forecasts: Above 1.1650

The Pound to Euro (GBP/EUR) exchange rate secured a significant net gain to just above 1.1650 on Monday. High yields continued to underpin the Pound and there were some reassuring comments from Chancellor Healey at the Labour Party conference, but there are still concerns over underlying fiscal conditions.

Healey stated that he is in lockstep with Prime Minister Burnham over the need to meet fiscal rules and added; "Through the core of the Budget I deliver a month today will be fiscal discipline.”

The UK 10-year yield traded above 5.40% in early Europe on Monday before edging just below 5.40%.

High bond yields will underpin the Pound if there are solid risk conditions. The FTSE 100 index managed to make gains amid strong support for the house-building sector.

Bank of England policy will also continue to be monitored closely.

Money market futures are pricing in an 85% chance of a 25 basis-point hike at the November meeting while four hikes are priced in by the middle of next year.

BBVA head of G10 FX strategy Roberto Cobo commented; "For sterling, a rate hike could provide near-term support, especially if accompanied by stabilisation in UK rates."

HSBC maintains a cautious stance surrounding the UK economy; "Markets are already pricing around 100bp of tightening from the Bank of England by July 2027, but higher energy prices create a difficult policy mix: inflation risks are rising even as growth momentum faces a challenging outlook."

The latest Euro-zone inflation data is due on Friday. Consensus forecasts are for the headline rate to increase notably to 3.7% from 3.2%, due to the impact of higher energy prices, with an increase in the core rate to 2.5% from 2.4%.

ING commented; “Headline CPI should accelerate on energy prices, but we expect core inflation to inch only 0.1ppt higher to 2.5%, confirming there’s no sign of second-round effects.”

It added; “Still, we doubt that will be enough to drive the European Central Bank to a more dovish stance. Policymakers still seem to prefer keeping market pricing hawkish as long as energy prices remain elevated. The closer we get to the October meeting, the more impactful ECB speakers can be on markets.

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TAGS: Pound Euro Forecasts