Pound-to-Euro Forecast: Bearish GBP Momentum Ahead

June 11, 2025 - Written by Ben Hughes

STORY LINK Pound-to-Euro Forecast: Bearish GBP Momentum Ahead

Pound Sterling was unable to gain support from the UK government spending review (SR) with markets tending to focus on medium-term fiscal risks. Markets were aware over the strong competition for global funds and suspect the Bank of England will accelerate rate cuts.

The Pound to Euro exchange rate (GBP/EUR) dipped to 1-month lows near 1.1775 before a slight recovery and failed to draw support from solid global risk appetite.

According to ING Budget events often stir gilt market volatility, so EUR/GBP might get a bit of bullish momentum and test 0.850 in the coming days. (1.1765 for GBP/EUR).

Spending on health is due to increase 3.0% in real terms over the next three years. There will also be notable gains in defence spending, but other departments will face real-terms cuts.

There was also an important note of doubt over medium-term plans given the front-loading of spending.

Paul Johnson, the outgoing head of the Institute for Fiscal Studies commented; “Not sure I’ve ever listened to a chancellorial speech so hard to work out what is happening. Rattling off huge number of figures making it look like big increases in spending on everything. Bear in mind current spending on average on all other than NHS not rising over SR period.”

NIESR interim director Stephen Millard expects medium-term pressures; “The Chancellor has yet again said that her fiscal rules are ‘non negotiable’. But, given the small amount of headroom at the time of the Spring Statement and the increases in spending announced since then, it is now almost inevitable that if she is to keep to her fiscal rules, she will have to raise taxes in the Autumn Budget.”


The 10-year bond yield traded above 4.60% in immediate reaction to the statement before sliding towards 4.55% as global bonds rallied following the benign US inflation data.

The UK market did, however, under-perform other major bond markets.

Reaction in the gilt market will continue to be watched very closely as the spending review is digested.

Jason Da Silva, director of global investment strategy at Arbuthnot Latham commented; "It is very difficult to manage this balance because typically what happens is when you have economic growth which is a bit soggy that tends to bring down bond yields."

He added; "But the increasing fiscal spend, and government debt being extremely high, is a headwind for (UK government) bonds."

Commerzbank is sceptical over the UK economic performance, especially after the latest labour-market data and commented; “Further difficult decisions regarding savings and higher revenues will probably have to be made, which are likely to exacerbate the difficult economic situation in the coming months."

It added; As we have emphasised several times, the path towards a stronger pound remains narrow, even if we do not want to overinterpret a single data release."


Berenberg, however, expects that inflation pressures will block rate cuts, undermining the growth outlook; “We suspect that the steep rise in total labour costs will prevent inflation from easing. We continue to expect the BoE will keep rates on hold for the remainder of 2025.”

Credit Agricole sees a potential Euro correction; “We doubt that the ECB’s tolerance for further EUR appreciation is limitless. We also continue to think that, if sustained, the current broad EUR-gains could pose downside risks to both the Eurozone growth and inflation outlook.”

It added; “The EUR continues to trade at a considerable premium relative to its relative rate disadvantage vs GBP and could be vulnerable to bouts of profit taking on long-EUR positions.”

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TAGS: Pound Euro Forecasts