Pound to Euro Forecast Ranges: 1.20 Now, 1.1765 - 1.22 by End 2025

February 16, 2025 - Written by David Woodsmith

STORY LINK Pound to Euro Forecast Ranges: 1.20 Now, 1.1765 - 1.22 by End 2025

Foreign exchange analysts at RBC Capital Markets forecast that the Pound to Euro exchange rate (GBP/EUR) will retreat gradually to 1.1765 at the end of 2025 and fragile UK fundamentals.

In contrast, Scotiabank sees scope for gradual GBPEUR gains to 1.22 as the UK is less vulnerable to trade pressures.

The Pound vs Euro rate registered a slight loss during the week to trade just above 1.2000 as Ukraine peace hopes helped underpin the Euro and to a lesser extent Sterling.

During the week, the Ukraine outlook exploded into focus. President Trump stated that the US would Ukraine start peace talks immediately and had already talked with Russian President Putin.

US Defence Secretary Hegseth stated that there would be no US military troops in Ukraine to police any cease-fire deal.

He also stated that restoring the pre-2014 Ukraine borders was unrealistic and that NATO membership was not on the agenda.

Inevitably, the comments triggered important tensions within Europe and fears within Ukraine, but any cease fire which could lessen short-term security concerns.

There will also be a wider focus on the implications for sanctions against Russia and gas supplies to Europe.

MUFG commented; “It is a potential development that would support our forecasts for the euro rebound against the US dollar later this year. Alternatively, a slower return or more limited return of Russian gas would dampen upside for the euro and other European currencies.”

Europe, however, also faces the threat of increased trade tariffs from the US Administration. Trump announced reciprocal tariffs would be imposed, but analysis will continue until April.

ING commented, “Yet it is the threat of tariffs that hangs as a dark cloud over a region, and it seems unlikely that businesses or consumers will be able to conclude anytime soon that the tariff threat has receded.”

According to RBC, “Externally, the UK is less vulnerable than some other economies, such as the Euro area, to tariff risks under Trump’s presidency.”

Scotiabank added; “The UK’s trade position with the US—it runs a small bilateral deficit, with the only trade advantage for the UK coming in services—gives the pound some plot armour in the still developing tariff story.”

RBC did, however, add, “this lower relative vulnerability to tariffs, coupled with the UK’s relatively higher yield, has kept GBP protected a bit too long in our view. We think downside risks for UK data are growing.”

The latest UK GDP data was slightly stronger than expected, with 0.1% growth for the fourth quarter of 2024 compared with consensus forecasts of a 0.1% contraction.

The data was, however, flattered by a surge in inventories, with exports and investments declining during the quarter.

Investment banks remain generally downbeat on the growth outlook, with concerns that fiscal policy will have to be tightened further.

Standard Chartered commented, “given the expectation of additional fiscal tightening on the spending front, we lower our 2025 growth forecast to 1.0% from 1.3% previously."

RBC does not consider that the Pound is good value; “GBP remains overvalued on a REER basis, particularly based on unit labour cost measures for the real effective exchange rate.”

Credit Agricole still sees a case for buying the Pound; “as long as the UK economy does not fall behind the Eurozone in the year ahead, the GBP could still fare somewhat better than the EUR, thanks to higher relative rates, less domestic political risk and smaller threats of tariffs coming from the US administration.”

SocGen forecasters will look to sell GBP/EUR rallies; “Any hawkish interpretation of MPC comments that send EUR/GBP to 0.83 or below is a chance to get some cheaper euros before President Trump turns his wandering eye to ending the Russia/Ukraine conflict.”

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TAGS: Currency Predictions Pound Euro Forecasts