British Pound to Euro Forecast: French Fiscal Crisis Drives GBP Higher

Modified: Thursday, 8 October 2026 22:01 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: French Fiscal Crisis Drives GBP Higher

The Pound to Euro exchange rate (GBP/EUR) surged to 16-month highs above 1.1820 as renewed turmoil in French government bonds triggered another wave of Euro selling.

Investors remain unconvinced that Marine Le Pen's proposed fiscal reforms can restore confidence in France's public finances, while elevated UK yields continue to support Sterling despite growing concerns over global bond markets.

GBP/EUR Forecasts: 16-Month High

The Pound to Euro (GBP/EUR) exchange rate briefly dipped lower on Tuesday, but the single currency failed to secure sustained relief and there was renewed selling on Wednesday as French bonds were subjected to renewed pressure.

Elevated energy prices also undermined the Euro while high yields underpinned the Pound.

As the Euro posted sharp losses, GBP/EUR surged again to 16-month highs above 1.1820

There are, however, also important Pound risks associated with a global bond sell-off and upward pressure on energy prices. The UK 10-year yield surged to 5.50% and very close to 19-year highs.

UK equities also moved lower as risk appetite deteriorated.

French bonds under-performed German bonds on Wednesday amid a lack of underlying confidence.

Commerzbank rates strategist Erik Liem commented; "the fundamental backdrop has hardly improved".

According to Danske Bank, volatility will inevitably remain higher; “We are looking towards a calmer period, but this can easily flare up again.”

The French fiscal situation remains a key element. France’s National Rally, led by Marine Le Pen, is promising €136bn in annual savings and aims to bring public spending below 50% of GDP by 2032.

ING commented; “Although the plan acknowledges the need for fiscal consolidation, many of the projected savings appear difficult to deliver.”

The bank added; “While it’s clear that Le Pen is attempting to establish herself as the market-friendly candidate, our macro team notes that her plan currently rests on ambitious spending-cut targets rather than a fully costed programme, with major uncertainties around how €140bn of savings, particularly on pensions, would be achieved. We therefore aren’t convinced her words are enough to drive a material OAT recovery from here.”

According to MUFG; “the prospect of a more meaningful action after years of political gridlock may be seen by investors as at least offering a path to change and an attempt to address years of fiscal slippage.”

It remains cautious over the outlook; “But with 56% of French sovereign bonds held by foreign investors, global fixed income sentiment will remain a key driver of the OAT/Bund spread over the period ahead. This alternative budget is unlikely to make much difference to the risks associated with OATs ahead of the election next year – especially given a plausible scenario of a presidential election run-off in the second round between Le Pen and the hard-left candidate Jean-Luc Melechon.”

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TAGS: Pound Euro Forecasts