Pound to Euro Forecast - October 2026

Modified: Sunday, 11 October 2026 21:31 BST - Written by David Woodsmith

STORY LINK Pound to Euro Forecast - October 2026

The Pound to Euro (GBP/EUR) exchange rate maintained a firm tone into the end of the week, holding close to 1.18 after recovering from an earlier dip.

GBP/EUR ended Friday around 1.1815, leaving Sterling close to its recent highs against the Euro.

Euro sentiment remained fragile amid continued concern over French fiscal policy, while the Pound was supported by expectations that the Bank of England will raise interest rates in November.

Higher gilt yields remain a potential threat to Sterling, particularly if investors interpret them as a sign of fiscal stress rather than monetary-policy support.

So far, however, the Pound has resisted sustained selling.

Handelsbanken FX strategist Tommy von Brömsen commented; "There are concerns about public debt and rising term premium in the UK gilt market, but so far the pound has been resilient."

He added; "Global focus is not on the UK much right now. It's more on Europe and more on the US."

BoE Hike Expectations Support Sterling

Bank of England policy expectations continue to provide an important source of support for Sterling.

MPC member Megan Greene warned last week that the UK is likely to experience second-round inflation effects from the recent energy shock, strengthening expectations that she will support a rate hike at the November meeting.

Chief economist Huw Pill has also maintained a relatively hawkish stance, while Governor Andrew Bailey has stressed that policymakers must remain focused on returning inflation sustainably towards target.

Markets currently price an above 80% probability of a November increase and roughly two 25-basis-point hikes by February.

ING remains sceptical that the Bank will ultimately tighten as aggressively as markets expect.

The bank commented; "Markets currently price 21bp for next month, 36bp by year-end and 89bp by June. Although the risk of a November move has risen materially, the broader Sonia curve still looks far too hawkishly priced in our view."

ING nevertheless considers it difficult to translate a potential repricing of UK rates into immediate Sterling weakness.

It added; "Elevated oil prices should keep downward pressure on repricing in the Sonia curve, while the euro continues to face significant domestic headwinds."

MUFG also expects a November move; "We still expect the BoE to finally begin to lift their policy rate for the first time in November, although guidance over the need for further hikes is likely to remain cautious."

French Fiscal Risk Keeps Euro Vulnerable

Confidence in French government bonds remains fragile and continues to weigh on the Euro.

French sovereign debt came under renewed pressure after reports that the Treasury could shorten the maturity of future issuance in an effort to reduce stress at the long end of the curve.

ING commented that while such a strategy may be rational from a debt-management perspective, investors were concerned that it could reduce pressure on politicians to tackle the underlying fiscal imbalance.

French political uncertainty and a widening risk premium have also reduced expectations that the European Central Bank will be able to continue tightening policy aggressively.

That leaves GBP/EUR supported by a combination of relatively hawkish UK rate expectations and persistent Euro-specific risks.

UK fiscal policy will nevertheless become increasingly important as the October 28 Budget approaches.

Governor Bailey warned last week that credible fiscal policy is now more important than ever given the sharp increase in government borrowing costs.

MUFG noted; "Media reports have suggested that the Labour government is well aware of challenging global bond market conditions ahead of this month's budget scheduled for 28th October which is encouraging them to play it safe as they seek to limit the risk of negative market reaction."

The bank added that such an approach would help limit downside risks for Sterling.

For GBP/EUR, the 1.1780-1.1800 region should provide initial support.

A sustained break above the recent highs around 1.1830-1.1840 would bring the 1.19 area highlighted by ING back into focus.

Conversely, a move below 1.1750 would suggest that Sterling's recent advance is beginning to lose momentum.

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TAGS: Pound Euro Forecasts