Pound-to-Euro Forecast: French Debt Fears Keep GBP Near 1.20

Modified: Sunday, 25 October 2026 18:31 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: French Debt Fears Keep GBP Near 1.20

The Pound to Euro exchange rate (GBP/EUR) has held close to 17-month highs around 1.1940 as expectations of further Bank of England tightening and persistent French fiscal concerns continue to favour Sterling.

ING sees scope for GBP/EUR to trade as high as 1.1960, although renewed equity-market weakness and the approaching UK Budget could test the Pound's recent resilience.

GBP/EUR Forecasts: Near 17-Month Highs

The Pound has maintained a firm tone in global markets, with the Pound to Euro (GBP/EUR) exchange rate holding close to 1.1940 and near its strongest levels in around 17 months.

Markets remain alert to a deterioration in global risk appetite following renewed losses in equity markets, which could eventually weigh on the Pound.

For now, however, potential Sterling vulnerability is being offset by persistent weakness in Euro sentiment amid concerns over French debt sustainability and political instability.

According to ING; "With the euro still having plenty of room to drop on French politics, EUR/GBP can stay offered in a 0.8360-0.8430 range for the time being."

That range would equate to roughly 1.1860-1.1960 for GBP/EUR.

MUFG commented on the French situation; "The sharp widening in yield spreads between French government bonds and other major government bonds continued yesterday highlighting the ongoing loss of confidence in the sustainability of debt in France which is adding to investor unease in the near-term."

French bond markets did receive limited relief on Friday after Moody's left France's Aa3 sovereign rating unchanged.

The agency retained a negative outlook and warned that its rating still assumes France will adopt a deficit-reducing 2027 Budget and that financing costs and social tensions will ease.

The decision avoided an immediate downgrade, but underlying confidence remains fragile.

French 10-year yields reached 5.14% last week, their highest level since 2002, while the spread over equivalent German debt climbed to its widest in around 15 years.

BoE Hike Expectations Continue to Support Sterling

Sterling is also benefiting from strong expectations that the Bank of England will raise interest rates at its November meeting.

Markets continue to price substantial additional tightening over the coming months as inflation remains elevated and recent UK data has generally surprised on the upside.

ING commented; "It seems like sterling is riding on the coat-tails of PM Andy Burnham's popularity. In reality, it looks like there is both independent sterling strength and independent euro weakness at play in EUR/GBP."

The bank also sees Sterling increasingly supported by carry.

ING added; "Earlier this summer, we had felt that sterling gains would not last. But now greater market confidence in a Bank of England tightening cycle makes sterling a high-carry European currency."

The Pound would, however, become more vulnerable if there were clear evidence that UK economic momentum is deteriorating.

The latest CBI industrial trends survey provided a warning on this front.

The orders balance fell sharply to -32 in October from -9 in September and was significantly weaker than consensus forecasts of -20.

The deterioration suggests demand conditions in manufacturing remain weak despite signs that the wider UK economy has performed relatively well.

CBI Senior Economist Cameron Martin nevertheless highlighted some grounds for optimism, noting that manufacturers expect falling output to stabilise and anticipate their first increase in headcount in two years.

He also cautioned that weak orders and labour shortages remain significant challenges.

French Risk Keeps 1.20 in Sight

The Euro remains under pressure from a combination of fiscal concerns, political uncertainty and expectations that stress in French markets could ultimately constrain European Central Bank policy.

Moody's decision to leave France's rating unchanged removed one immediate source of pressure, but the underlying fiscal challenge remains unresolved.

The French government still needs to pass a 2027 Budget aimed at reducing the deficit to 5.0% of GDP from 5.4% this year, while opposition parties remain reluctant to support the proposed savings measures.

For GBP/EUR, the 1.1950-1.1960 area remains the immediate upside barrier.

A sustained break above this region would bring 1.2000 into focus.

On the downside, 1.1860-1.1900 should provide initial support.

For now, the combination of strong UK rate expectations and continued French fiscal stress keeps the balance tilted in Sterling's favour.

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TAGS: Pound Euro Forecasts