Pound to Euro Week Ahead Forecast: GBP Rally Faces October Budget Test

Modified: Monday, 19 October 2026 07:01 BST - Written by James Fuller

STORY LINK Pound to Euro Week Ahead Forecast: GBP Rally Faces October Budget Test

The Pound-to-Euro exchange rate (GBP/EUR) climbed to fresh 16-month highs above 1.1850 as French debt concerns, stronger UK growth and continued Sterling buying pushed the pair higher.

ING sees scope for gains towards 1.22 if Eurozone risks intensify, but Société Générale considers the rally an opportunity to sell the Pound, warning that tighter UK fiscal policy and stretched valuations could undermine Sterling next year.

GBP/EUR Forecasts: Pound Sterling Surge

SocGen is looking to sell Pound to Euro (GBP/EUR) exchange rate gains to above 1.19. It forecasts a retreat to 1.15 by the third quarter of 2027.

Credit Agricole expects GBP/EUR will retreat towards 1.16 before the end of this year, but expects the pair to end 2027 at 1.19.

GBP/EUR strengthened further to fresh 16-month highs just above 1.1850 during the week amid strong Pound demand.

The Pound continued to gain net support from position adjustment and unease over the French debt situation while the latest UK GDP data was stronger than expected.

ING sees the possibility of GBP/EUR gains to 1.22 if Euro-Zone fears intensify, but expects a 1.18-1.19 range over the next few months.

Socgen commented on the Pound fundamentals; “The widening in European yield differentials of recent days has given GBP support and dragged EUR/GBP down close to last summer's lows. This, we think, is an opportunity to sell GBP. Tighter fiscal policy is coming; the balance of payments remains a threat and the Pound is getting steadily more expensive in real effective terms as inflation exceeds levels elsewhere in Europe.”

Fiscal and monetary policy will inevitably be key elements for the Pound.

As far as the October 28th budget is concerned, there are reports that Chancellor Healey will maintain a strong commitment to the fiscal rules and is expected to increase taxation on the banking sector to help restore fiscal headroom.

There are strong expectations that the Bank of England (BoE) will increase interest rates at the November policy meeting amid fears that the sustained increase in energy prices will lead to second-round inflation effects. Traders are also pricing in four rate hikes over the next year.

Credit Agricole is not backing these expectations; “We believe that despite the recent economic resilience and inflation persistence in the UK, rates markets are pricing in a very aggressive BoE tightening cycle.”

It pointed out that chief economist Pill is strongly backing a November rate hike, but doubted that longer-term market pricing was realistic.

Credit Agricole added; “Moreover, the price that the UK economy may have to pay for the government’s fiscal prudence would be additional fiscal austerity measures to be announced as part of the Autumn statement on 28 October. We also expect the UK growth outlook to weaken again next year.”

ING noted the possibility of European-related gains; “One of the sterling bullish wild cards is Europe. PM Burnham wants to get closer to Europe and does not rule out a referendum on an EU return. An EU-UK summit on 20 November may generate headlines that are typically welcomed by sterling.”

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TAGS: Pound Euro Forecasts