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One of the most accurate forecasters of pound-euro says the rally now faces three significant headwinds.

Kudos to Bank of America’s strategists who are rewarded for a significant out-of-consensus bullish view on pound sterling: the target has been reached, and exceeded.

Because they got the big call correct, it’s probably worth listening to what they think about the pound’s current valuation against the euro and what comes next. The headline is that they say it is now time to turn cautious.

“EUR/GBP target reached, turning neutral,” says the bank’s sterling FX strategist, Kamal Sharma.

Sharma has been bullish pound sterling relative to the euro this year, saying the market has underappreciated the UK’s economic potential.

“Our thesis at the time was that the markets had taken an overly pessimistic view on the UK economy, primarily driven by fiscal concerns,” says Sharma.

Pound Sterling Live has held a similar House View since early summer, and like Sharma, has argued the AI investment pulse was underestimated by economists vis-à-vis the pound.

“The macro story has been helped by the AI wave which has boosted growth momentum with other pillars such as the housing and labour market remaining resilient,” says Sharma.

EUR/GBP Forecast Targets Met

The median of consensus forecasts for EUR/GBP at the start of 2026 was 0.89, whereas Bank of America pencilled in a forecast target at 0.84.

The pair has fallen to 0.8368 by October 23, the lowest since May 2025.

For pound-to-euro watchers, the BofA forecast target is 1.19, against a consensus at 1.12. The high is at 1.1950.

What Comes Next: Three Reasons to Prepare for a GBP Pullback

Pound Sterling Live has for two weeks been predicting – in vain – that the pound-euro rate’s rally ought to reverse as overbought conditions are very much in evidence.

Indeed, this week’s push higher has left the overbought reading on the RSI to a record level, unseen in more than two decades of data.

BofA’s Sharma says there are three reasons to turn cautious on sterling from here:

1) Data surprises at the highs.

A powerful tool in foreign exchange research and prediction is how an economy’s data outcomes surprise against the expectation. It makes sense, as it is the surprise element of an event that tends to move a currency, because traders and investors have to reposition to reflect burgeoning strength or weakness.

A look at the UK surprise index from Citi shows the recent months have yielded a run of positive surprises. It now leaves the index looking richly priced (ignore the post-pandeemic spike).

“We think the ability of the UK data to consistently outpace expectations is likely to wane, especially against the backdrop of the UK rates market which is pricing in a cumulative 115bps of rate hikes over the coming year,” says Sharma.

2) Positioning headwinds harder to resist

Positioning is also an issue. “GBP option premium has repriced meaningfully in favour of calls across most crosses,” says Sharma. In short, that means investors and hedgers have bought a significant volume of option trades that favour upside.

And it’s not just EUR/GBP. “GBPAUD skew is above its 90th percentile out to 6m, while GBPUSD, GBPNZD and GBPCAD also favour GBP upside more than usual,” says Sharma. “With this much optimism priced, sentiment looks increasingly one-sided.”

In short, with the market heavily positioned in one direction, a setback to the bullish narrative could lead a rapid closure of these positions, resulting in downside.

3) Budget risks are underpriced

Wedneday’s budget is upon us, and it forms the key event of the fiscal calendar.

There’s been a distinct lack of hype ahead of John Healey’s first budget when compared to the two delivered by his Labour predecessor, Rachel Reeves.

That’s meant the market has effectively downplayed the risks it poses.

“We are struck by the relative calm in UK markets,” says Sharma. “We think there are some risks of complacency despite the lack of tangible news flow. We would anticipate GBP to consolidate in the coming sessions as the Budget looms.”

Yet, the pound looks to be on course for a fourth weekly advance against the euro, with another fresh multi-week high being printed this Friday. Surely this rally is due to be tested?

Daniella Arcadipane, Senior Currency Specialist at Indigo

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U.S. Dollar Index gains ground as traders focus on PMI reports. Manufacturing PMI increased from 55.9 in September to 56.0 in October, compared to analyst forecast of 55.5. Services PMI decreased from 58.8 to 57.9, compared to analyst consensus of 58. Numbers above 50 show expansion.

Traders also had a chance to take a look at the Michigan Consumer Sentiment report. The report showed that Michigan Consumer Sentiment declined from 48.1 in September to 48.0 in October, compared to analyst forecast of 46.3.

EURJPY continued to trade negatively amid prevailing bearish factors, including repeated stability below the resistance barrier near 177.80, alongside continued negative momentum signals from the main technical indicators. As a result, the pair has now reached its previously suggested downside targets, falling to 175.20, where it encountered a strong historical support base, prompting a swift rebound toward 176.10.

We expect the price to begin forming short-term bullish corrective waves as long as it holds above 174.90, attempting to recoup some of its losses by gradually advancing toward 176.55 and 177.00, respectively. Conversely, a break below the current support level, followed by continued trading beneath it, would expose the pair to further losses, with downside targets at 174.55 and 173.95.

The expected trading range for today is between 175.00 and 176.55.

Trend forecast: Fluctuating

Euro: France’s Premium Hits a 15-Year High

Softer US rate bets should have helped the euro, yet it has stayed flat around 1.12 because France is now the bigger worry. The premium investors demand to hold French 10-year bonds over German Bunds, meaning the extra interest France pays compared with Germany, the euro zone’s benchmark borrower, widened to a 15-year high on Thursday. That is the widest since November 2011, during the euro zone debt crisis, Reuters reported. France’s 10-year yield reached its highest level since July 2002, and the gap also widened for Belgium, Italy, Spain and Greece.

There is no easy rescue either. France is under an EU excessive deficit procedure, a formal EU process for countries whose budget deficit is too large, so it may not qualify for the ECB’s Transmission Protection Instrument, the central bank’s emergency tool for calming bond markets. ECB President Christine Lagarde has said the fix for France’s finances must be homegrown, which leaves the euro carrying that risk on its own.

USD/JPY moved lower as traders focused on the strong pullback in Treasury yields. The yield of 2-year Treasuries declined below the 4.70% level, while the yield of 10-year Treasuries settled below the psychologically important 5.00% level. Treasury yields moved lower as demand for U.S. bonds increaseed amid sell-off in U.S. equity markets.

Currently, USD/JPY is trying to settle below the 157.00 level. In case this attempt is successful, USD/JPY will head towards the next support, which is located in the 155.00 – 155.50 range.

On the upside, USD/JPY needs to settle above the resistance at 158.00 – 158.50 to gain upside momentum in the near term. In this case, USD/JPY will move towards the 160.00 level.

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EURJPY maintained its bearish stability by forming negative trading to move away from 177.80. The pair is currently fluctuating around 177.25, while continued negative momentum from the main indicators supports our bearish outlook, with the price potentially targeting several downside levels, starting at 176.35 and then 175.75.

We reiterate that a successful move above the resistance barrier, followed by a positive close, would confirm the pair’s shift toward a corrective bullish trend, increasing the likelihood of further gains toward 178.60 and then 179.40.

The expected trading range for today is between 176.35 and 177.80

Trend forecast: Bearish

EURGBP completed the previously anticipated bearish move, reaching 0.8370 and approaching strong demand zones around 0.8360. This area represents an important support level for confirming the overall direction of trading in the short and medium term.

If the price holds above current support, it may move sideways while gathering the positive momentum needed to begin recovering its losses, gradually advancing toward 0.8415 and 0.8460. However, a break below current support, followed by a four-hour close that remains below it, would confirm a new bearish phase, potentially exposing the pair to further losses toward 0.8325.4

The expected trading range for today is between 0.8360 and 0.8415

Trend forecast: Bullish

– Written by


Minesh Chaudhari

STORY LINK GBP/USD Forecast: Pound Sterling Leads G7 as BoE Rate Hike Bets Build

The Pound to Dollar exchange rate (GBP/USD) has climbed towards four-week highs around 1.3400 as stronger UK employment and inflation figures reinforce expectations of a November Bank of England rate hike.

Pound Sterling has outperformed its major peers, while concerns over the US artificial-intelligence investment boom continue to limit Dollar demand despite elevated American yields.

GBP/USD Forecasts: 4-Week Highs

The Pound maintained a firm tone on Wednesday after stronger UK labour-market and inflation data reinforced expectations of a Bank of England rate hike in November.

The Pound to Dollar (GBP/USD) exchange rate held above 1.3300 and traded close to 1.3380-1.3400, its strongest level in around four weeks.

Sterling has outperformed most major currencies in recent sessions as UK data surprised on the upside, while the Dollar struggled to gain traction amid renewed concerns surrounding the US technology sector.

GBP/USD faces significant resistance above 1.3400, with a sustained break potentially opening the way towards the mid-1.34s.

UK Data Strengthens November BoE Hike Case

The latest UK labour-market figures showed the unemployment rate falling to 4.7% in the three months to August from 4.9% previously.

Vacancies continued to decline, but the Office for National Statistics reported a modest increase in payroll employment during August and September.

Annual regular earnings growth held around 3.7%.

Wednesday’s inflation figures added further support for Sterling.

Headline CPI accelerated to 3.5% in September from 3.1% in August, slightly above consensus forecasts, while core inflation increased to 2.8%.

Services inflation also rose to 3.7%.

The combination of stronger labour-market data and firmer inflation has effectively cemented expectations that the Bank of England will increase Bank Rate from 3.75% to 4.00% at its November meeting.

Handelsbanken FX strategist Tommy von Brömsen commented; “The UK economy is surprising on the upside. There’s room for more hiking.”

He added; “Rate differentials are going to go in favour of the pound going forward.”

There are still doubts over whether the Bank will deliver the full amount of tightening currently priced over the next 12 months.

Lloyds’ senior UK economist Nikesh Sawjani commented; “The release reinforces expectations of a November hike, rather than making a compelling case in itself for a more aggressive path thereafter.”

AI Concerns Keep Dollar on the Defensive

The Dollar has struggled to benefit fully from elevated energy prices and high US yields as investors continue to assess risks surrounding the artificial-intelligence investment boom.

Concerns have centred on highly leveraged US data-centre companies and the sustainability of current investment models.

ING commented; “Energy markets remain nervous that the US and Israel may once again attack Iran ahead of the US Mid-Terms.”

The bank added that concerns surrounding high-yield US data-centre providers remain a key threat to Dollar strength.

CoreWeave debt has traded at a substantial discount to face value, reinforcing concerns that stress in the AI investment sector could tighten US financial conditions.

The Dollar has also proved vulnerable when technology shares fall sharply, as weaker equities encourage investors to reduce expectations of further Federal Reserve tightening.

Nordea remains more constructive on the US currency.

The bank commented; “Inflows into US equities and credit are unlikely to fade simply because interest rates are slightly higher. Passive investment reinforces this trend because broad indices remain heavily concentrated in US mega-cap technology stocks.”

It added that continued unhedged investment flows into US assets should provide underlying Dollar demand.

For GBP/USD, the 1.3400 area remains the immediate technical barrier.

A sustained break higher would strengthen the recent Sterling recovery and bring 1.3450-1.3500 back into focus.

On the downside, 1.3300 should provide initial support, followed by the 1.3230-1.3250 region.

Near-term direction is likely to depend on whether UK rate expectations remain firm and whether concerns surrounding US technology and credit markets continue to restrain the Dollar.

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The euro is where I start today. Recently, we’ve seen a pretty significant sell-off in the euro, followed by some consolidation. I suspect downward pressure is still going to be a fundamental part of this market, and I believe that the 1.1350 level above remains a bit of a barrier. Any signs of exhaustion after a short-term rally is what I’m looking for.

The pair took advantage of its repeated stability above 210.40, along with the positive momentum generated by stochastic as it reached overbought territory, to form new bullish waves. This brought the price within a short distance of its target at 212.20, before it began moving sideways as this level formed an additional barrier to further upside attempts.

The 55-period moving average remains positioned above the current price, creating a conflicting technical signal that prevents confirmation of a bullish trend reversal. This leads us to favor some bearish trading, potentially targeting 210.80 and then 210.00. However, a breakout above the 55-period moving average, followed by sustained trading above it, would confirm the pair’s readiness to achieve further gains, with targets at 212.65 and 213.25, respectively.

The expected trading range for today is between 210.00 and 212.00.

Trend forecast: Bearish