Pound to Euro Week Ahead Forecast: Buy to 1.2050 in Near-Term

May 26, 2025 - Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: Buy to 1.2050 in Near-Term

Credit Agricole analysts expect the Pound to Euro exchange rate (GBP/EUR) to strengthen to 1.2050 in the short term, with further gains to 1.2350 at the end of 2026.

After initial stability, however, UBS expects a gradual retreat to 1.1630 by June 2026.

GBP/EUR finally managed to break above the 1.19 area on Friday following the latest Trump trade attack against the EU with 7-week highs at 1.1930 before a retreat to 1.1905.

In a post on Friday, US President Trump called for 50% tariffs on EU exports into the US from June 1st. This would be substantially higher than the 10% baseline tariff and the 20% proposed in the April reciprocal tariff announcement.

There were fresh fears over the Euro-Zone outlook and GBP/EUR was also boosted by the fact that the UK and US have already reached an outline trade deal.

City Index Senior Market Analyst Fiona Cincotta commented; "The market was in this sense of perhaps there are going to be trade deals and worst case scenario is potentially being avoided after Liberation day and then there was that pause. But this latest threat is worse than the worst case scenario."

The Trump move could well be a negotiating tactic to secure further concessions from the EU, but the timeframe is short and uncertainty will remain high.


According to ING; “Despite the aggressive rhetoric, Trump’s tariff threats are often a prelude to negotiation as with China’s weekend deal at the beginning of May (which in fact was more a delay than a real deal). However, it has always been clear that the US administration’s stance on the EU will be different than with most other trading partners.”

MUFG commented; “A 50% tariff could result in a big hit on euro-zone GDP and would likely prompt the ECB to cut the policy rate more aggressively. Still, we can’t be sure of course that this action will be followed through.”

Markets also moved to price in three further ECB rate cuts this year, potentially sapping Euro yield support.

Credit Agricole considers that the Euro is overvalued; “we have been long of the view that the EUR trades at a considerable premium when compared to its relative rate appeal vs the USD and GBP. We would expect next week’s inflation data to strengthen market expectations for a ‘dovish cut’ from the ECB in June, in a blow to the relative rate appeal of the EUR.”

Credit Agricole also sees potential Pound support; “The gradual post-Brexit rapprochement between the UK and the EU has sped up of late as well with the two signing a “Brexit-reset” agreement A continuing thawing of the relationship between the UK and the EU should, over time, alleviate some of the negative consequences for the former, in a boost to the GBP.”

UBS still expects stronger Euro-Zone growth; “Germany lifting the debt brake is a step change, as it marks the biggest fiscal expansion in the country since its reunification. As a result, combined with increased European defense spending, we expect Eurozone growth over our forecast horizon at 1% or more.”

Deutsche Bank added; “We believe prevailing consensus forecasts for Germany – predicting another year of stagnation – are overly pessimistic.


UK business confidence data was mixed while retail sales posted a stronger than expected April increase.

The latest inflation data was stronger than expected with the headline rate jumping to 3.5% from 2.6% and above consensus forecasts of 3.3% while the core rate increased to 3.8% from 3.4%.

There will be a cut in retail energy prices in July, but markets ruled out the potential for a June Bank of England rate cut and were also more doubtful over the potential for an August move.

UBS is backing a steady approach “we still expect quarterly BoE cuts, which should decrease rates differentials toward the end of our forecast horizon.”

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TAGS: Pound Euro Forecasts