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14
04, 2025
Pound to Euro Week Ahead Forecast: Short-Term Buy, 1.19 by Q3 2025
April 13, 2025 – Written by David Woodsmith
STORY LINK Pound to Euro Week Ahead Forecast: Short-Term Buy, 1.19 by Q3 2025
Investment banks have been scrambling to adjust forecasts following another week of turmoil in global markets as tariff developments have dominated. Markets are also adjusting to on-going evidence of major changes surrounding the global economy.
The Pound to Euro (GBP/EUR) exchange rate dived to 16-month lows just below 1.1450 on a Euro surge before a tentative recovery back above 1.15.
Most banks expect at least a short-term recovery from current levels, but longer-term forecasts are in a state of flux.
RBC Capital Markets (RBC) expects a recovery to 1.1900 by the third quarter of this year before renewed losses to 1.11 at the end of next year.
UBS recommends buying GBP/EUR on any dips to 1.1430. It has a March 2026 target of 1.1765.
There had been expectations that a lower rate of US trade tariffs on the UK compared with the EU would help support the Pound against the Euro.
On a short-term view, however, any potential support was more than offset by market turmoil, a collapse in risk appetite and the demand for safe-haven assets.
The US decision to delay reciprocal tariffs for 90 days also means that the UK and EU tariffs are at the same level for the time being.
Acute risk aversion amid a slide in equity markets triggered substantial defensive Euro demand and the Pound always struggles when risk appetite deteriorates.
According to Deutsche Bank; “EUR/GBP is now trading rich to front-end rate differentials, That makes the move more similar to the carry unwind of early August 2024, and also continues to a role for repatriation flows.”
Following very sharp losses, there will be speculation that the Pound is over-sold.
According to Credit Agricole; “the recent FX spot moves have pushed EUR/GBP deep into undervalued territory according to our short-term FX fair value model that is based on FX drivers like the EUR-GBP rate spread as well as measures of risk aversion.”
It added; “We thus believe that the cross is close to peaking.”
Bank of America is still cautious over the scope for Euro gains from current levels; “Sanity checks suggest EUR has outperformed. We do maintain a bearish bias vs. GBP.”
According to the bank net investment capital inflows into the Euro area have been disappointing.
BoA also considers that good news has been priced in; “A measured EU stance in relation to US tariffs would be good for the EUR – and in line with our economists’ baseline – but is likely in the price.”
Credit Agricole considers that the relative outlook is still favourable for the Pound; “The recovery should be broad-based and help ease market fears about the UK economic outlook in the near term. This, coupled with market and BoE expectations that inflation could remain sticky in the coming months could further encourage UK rate investors to pare back their aggressive rate cut expectations. All that could give the undervalued GBP some support.”
Nataxis forecasts a limited recovery to 1.1670 by end 2025.
Nomura is still targeting GBP/EUR losses to 1.1365.
Nomura maintains a bearish stance on the Pound; “the recent spike in bond yields will do more harm to the UK from a fiscal perspective than most other G10 countries.”
Nomura, however, also notes that trade fears could still undermine the Euro if there is a more aggressive stance. It added; “The risk of trade retaliation in Europe should not be ruled out, even if the approach so far has been pragmatic.”
RBC notes mixed influences on the cross. On a short-term view, it noted; “From here, GBP may find some support if headlines turn more negative on Europe, and in particular if we see more signs of the relative European equity outperformance stalling.”
RBC is, however, still wary over the UK outlook; “The concern from the OBR’s perspective is that a growth hit of that size would wipe out the UK’s fiscal buffer. The 2022 Truss episode has done lasting damage in that even under pretty extreme global conditions, gilt investors, and by extension the UK govt, see limited room for the govt to offer much fiscal support.”
For the next few months it noted; “Positioning in long EUR/GBP is at a two year high which is a headwind for further gains. GBP retains its significant yield advantage and is expected to maintain that through this year. That should ultimately cap GBP losses.”
The bank still pointed to longer-term vulnerability; “GBP remains overvalued on a REER basis, particularly based on unit labour cost measures for the real effective exchange rate. We see EUR/GBP drifting higher in 2026.”(Gradual GBP/EUR losses).
UBS points to two-sided risks for the UK economy and Pound.
On the positive side it noted; “The UK’s economy is far less susceptible to the US trade actions, which could translate into a reversal.”
On the downside; “The risk is that the UK lacks the increased structural support from higher fiscal spending seen in the Eurozone or Germany in particular.”
It summarised; “Overall, we see spot risks as slightly skewed to the downside. Further, elevated volatility and skewness further add to our rationale.”
Unicredit is forecasting GBP/EUR losses to 1.1235 by December 2025.
Rabobank has cut is end-2025 GBP/EUR forecast to 1.1765 from 1.2050.
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