Pound to Euro Weekly Forecast: Retreat to 1.19 on Aggressive BoE Cuts

March 2, 2025 - Written by David Woodsmith

STORY LINK Pound to Euro Weekly Forecast: Retreat to 1.19 on Aggressive BoE Cuts

Currency exchange strategists at Standard Chartered have a 12-month Pound Sterling forecast of 1.2265 amid Euro vulnerability.

ING expects the GBP/EUR exchange rate will hold near current levels in the short term before a retreat to 1.19 at the end of the year as the Bank of England cuts interest rates more aggressively.

GBP/EUR strengthened during the week amid expectations that near-term US trade policy on Europe would target the EU rather than the UK.

The breakdown in relations between the US and Ukraine following the major rift between Trump and Zelensky also increased European security fears and triggered further Euro losses with GBP/EUR hitting fresh 2-month highs near 1.2130.

There have been hopes that any Ukraine ceasefire deal would help lower gas prices, support the Euro-Zone economy and boost the Euro.

If, however, security fears escalate, there will be fresh economic fears with the risk of renewed Euro selling. Diplomatic efforts will be watched very closely in the near term.

Trump will speak to a joint session of Congress on March 4th when Trump has promised tariffs on Mexico and Canada will come into force. There is also the potential for an announcement on EU tariffs.

According to ING; “for the time being, the threat of tariffs and their impact on global growth is euro negative. And we expect investors to be adopting more defensive positions into next Tuesday's event risk.”

Goldman Sachs noted two-sided risks; “Markets continue to price only a small tariff premium in the currency and we think their implementation will ultimately take the cross back lower. At the same time, if tariff policy changes are smaller than markets expect—perhaps in part due to pro-active EU policies—then the currency could rise further.”

Following President Trump’s meeting with Prime Minister Starmer there was increased confidence that the UK would avoid tariffs at this stage.

According to Rabobank; “At the very least, it kicks the can down the road and saves the UK from tariffs. For today, at least.”

The CDU/CSU came first in the German Federal election with the far-right AfD coming second. The main parties have refused to consider any coalition deal with the AfD.

The Euro rallied on hopes that a new coalition could boost government spending, but failed to hold the gains.

Standard Chartered commented; “It is likely the new government boosts infrastructure investments to support growth, but the debt brake is likely to ultimately act as a constraint.”

As far as monetary policy is concerned, there are strong expectations that the ECB will cut the deposit rate by a further 25 basis points this week to 2.50%.

Rabobank is more cautious; “as monetary policy becomes less restrictive, and the economic outlook again becomes more clouded, a growing group of rate setters may call for a pause soon.”

UBS sees evidence of a tentative Euro reversal; “Highly negative sentiment on Europe has started to improve. Once the ECB slows down or stops its easing around the middle of the year, a gradual recovery of the euro and its European peers is expected.”

Credit Agricole considers that the Euro is undervalued

It added; “EU tariff talk from the Trump administration could continue to add to the headwinds for the EUR vs the GBP in the coming days. That being said, a lot of negatives seem to be in the price of EUR/GBP and the FX pair is looking quite undervalued already.”

There was a shift in stance from a Bank of England Deputy Governor during the week. Ramsden stated that he was uneasy over wage developments in the UK and that risks to inflation are no longer to the downside.

He stated that risks are more balanced while the outlook is more uncertain.

Inflation concerns could delay further BoE rate cuts which would reinforce positive Pound yield spreads over the Euro, at least in the short term.

ING commented; “Having cut rates in February, the path of least resistance is for the Bank of England to keep lowering rates once per quarter for the remainder of the year.”

The bank; however, expects a more aggressive policy stance; “Still, the jobs market is under more visible pressure and we expect service sector inflation to fall back in the spring, undershooting the most recent BoE forecasts. That should make the Bank more comfortable with cutting rates much closer to 3% than markets are currently pricing.”

ING expects reduced yield spreads will undermine Pound support later in the year. The bank also remains concerned over fiscal policy with the risk that the government will have to announce further spending cuts later this month.

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TAGS: Currency Predictions Pound Euro Forecasts