Pound to Euro Weekly Forecast: GBP Hits 16-Month Best Ahead of UK Budget

Modified: Monday, 26 October 2026 06:31 BST - Written by David Woodsmith

STORY LINK Pound to Euro Weekly Forecast: GBP Hits 16-Month Best Ahead of UK Budget

The Pound to Euro exchange rate (GBP/EUR) has climbed to 16-month highs above 1.1950 as French debt concerns and capital inflows continue to favour Sterling.

The rally now faces a crucial test from Chancellor John Healey's October 28 Budget, with investors looking for credible fiscal tightening to protect confidence in UK bonds while the Bank of England prepares for a widely expected November rate hike.

GBP/EUR Forecasts: Healey Faces Key Test

Danske Bank is forecasting that the Pound to Euro (GBP/EUR) exchange rate will slide to 1.1360 on a 12-month view.

Credit Agricole is still forecasting that GBP/EUR will retreat to 1.1630 at the end of this year before gains to 1.19 at the end of next year, although it is ready to adjust these forecasts.

GBP/EUR continued to secure strong buying during the week with 16-month highs above 1.1950 as the Euro remained vulnerable and the Pound attracted capital inflows.

Danske noted that there are risks on both sides for the Pound; “Near-term risks are inherently connected to global energy prices and the developments in Iran as well as the global investment environment. The key risk to EUR/GBP trading substantially higher than our forecast is a sharp sell-off in global risk. Other risks are related to developments in the relative growth outlook between the euro area and the UK.

It added; “If growth fares better than expected in the UK, this could send EUR/GBP substantially lower.”

The immediate focus will be on this week’s budget. There are strong expectations that there will have to be some element of fiscal tightening to maintain a strong commitment to the fiscal rules.

Danske Bank commented; “Preserving fiscal credibility and rebuilding headroom are priorities, alongside targeted cost-of-living support. Financing could involve spending reprioritisation and targeted tax increases, with capital-gains and high-value-property taxes among the options under discussion.”

The headline UK inflation rate increased to 3.5% from 3.1% previously and above consensus forecasts of 3.4% with the core rate at 2.8% from 2.6%.

There are very strong expectations that the Bank of England will raise rates at the November policy meeting.

According to Danske; “We believe the BoE will act to contain inflation risks and therefore adjust our forecast to include a rate hike to 4% in November and expect the Bank rate to remain at that level throughout 2027.”

Markets remain very uneasy surrounding the French debt situation. There are also concerns that the debt difficulties will compromise the ECB battle to keep inflation under control.

According to Credit Agricole; “France’s fiscal problems continue to contrast with the ‘prudence’ of the Burnham government and boost the appeal of the GBP as a safe-haven EUR-proxy. Furthermore, the mining-heavy UK stock market has attracted investors looking to cut their exposure to Eurozone and US equities.

It added; “These positives could linger for now, but a renewed UK growth underperformance could rekindle fiscal risks and undermine the appeal of GBP-denominated assets.”

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TAGS: Pound Euro Forecasts