Pound to Euro Week Ahead Forecast: GBP Breaks 1.20 but Banks Warn of Correction

Modified: Monday, 2 November 2026 07:01 BST - Written by Frank Davies

STORY LINK Pound to Euro Week Ahead Forecast: GBP Breaks 1.20 but Banks Warn of Correction

The Pound to Euro exchange rate (GBP/EUR) has climbed to 18-month highs above 1.2000, but investment banks warn that Sterling could struggle to extend its gains after this week's Bank of England decision.

Markets are pricing more than four rate hikes over the coming quarters, leaving the Pound vulnerable if policymakers deliver the expected November increase but signal a less aggressive tightening path.

GBP/EUR Forecasts: BoE Poised to hike

Danske Bank is forecasting that the Pound to Euro (GBP/EUR) exchange rate will retreat after the latest Bank of England (BoE) policy decision with a 12-month forecast of 1.1360.

Credit Agricole considers that the short-term GBP/EUR fair value is around 1.18 which also leaves the Pound vulnerable to a near-term correction.

GBP/EUR maintained its bullish tone during the week and hit 18-month highs just above 1.20. The Pound was resilient with some relief that UK bonds and equities held steady despite increased risk aversion. The Euro also continued to struggle in global markets.

Geo-political risks will remain a key element with further upward pressure on energy prices and vulnerability in global equity markets. Further volatility will pose risks for both the Pound and Euro.

There are strong expectations that the BoE will raise rates in the week ahead.

Rabobank commented; “We expect the Bank of England to raise Bank Rate by 25bp to 4.00% next week. We think the vote will be split 7-2, with doves Dhingra and Taylor preferring to keep rates unchanged.”

According to Credit Agricole; “Ahead of the November policy meeting, the UK markets expect more than four rate hikes in the coming months and quarters, making the BoE one of the most hawkish central banks and the GBP one of the most attractive high yielders in G10 FX. We doubt that the MPC would meet these hawkish expectations, however, and note that recent policymakers have been reluctant to validate the market views.”

Danske Bank added; “Given market pricing, the balance of risk is tilted towards a less hawkish stance which would leave some upside risk for EUR/GBP.”

Credit Agricole noted; “We worry that the correlation between the GBP and gilt yields could turn negative once again if tighter financial conditions make the BoE more dovish in the coming months.”

There was a muted market reaction to the budget with Chancellor Healey maintaining the commitment to fiscal rules. There are, however, still important reservations surrounding the medium-term outlook with no measures to tackle long-term pressures.

MUFG commented; “The public finances improve materially in the outer years, but this relies on spending restraint that has yet to be specified in detail, and can reasonably be assumed to be politically difficult to deliver as the next election approaches.”

It added; “Still, the UK has made at least some progress on deficit reduction in recent years – unlike some notable peer countries – and that should be recognised.”

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TAGS: Pound Euro Forecasts