Pound Sterling Forecast vs Euro Ranges: Strong Support on Dips to 1.177

March 18, 2025 - Written by James Fuller

STORY LINK Pound Sterling Forecast vs Euro Ranges: Strong Support on Dips to 1.177

On Tuesday, the German parliament (Bundestag) approved the constitutional change to exempt defence and security spending from the debt brake. The huge German spending commitment is in stark contrast to UK pressure to tighten policy.

The Euro had priced in the approval, limiting scope for further buying, but did secure limited further support following the vote and the Pound to Euro (GBP/EUR) exchange rate settled around 1.1880.

Risk appetite took another dip lower which also limited wider Pound support.

Rabobank expects the Pound will be resilient close to current levels with strong GBP/EUR support on any dips to 1.1770.

ING also expects GBP/EUR support at 1.1765.

The Bundestag secured 512 votes in favour of the change, above the two-thirds majority of 489 needed.

As well as increased defence spending, there was also approval for a EUR500bn infrastructure fund.

The Bundesrat upper house will vote on Friday to approve the legislation formally.

According to Rabobank; “This should allow for greater spending on defence in addition to setting the stage for a EUR500 bln debt-financed infrastructure fund and allowing the German states to run modest budget deficits.”

The German ZEW investor confidence index strengthened sharply to 51.6 for March from 26.0 previously and above consensus forecasts of 48.0.

The current conditions index, however, improved only slightly to -87.6 from -88.5 in February and compared with expectations of -80.5, illustrating that there are still very important concerns over the outlook.

Attention will move towards UK fiscal policy with the budget statement on the 26th. The government announced welfare reform plans on Tuesday amid pressure to control spending.

According to the Resolution Foundation, Chancellor Reeves has a £4.4bn shortfall in meeting the fiscal rules compared with a £10bn surplus in October.

The OECD lowered its forecast for British growth this year to 1.4% from its December forecast of 1.7% ahead of the budget update, illustrating structural concerns.

According to Credit Agricole; “the UK Chancellor could be forced to unleash spending cuts in order to meet her own long-term budget rules. That contrasts quite starkly with the recent spending plans announced by the EU to in particular boost defence spending, which could then put the UK macro outlook at risk of falling behind most of Europe in the coming years.”

It added; “While more details and confirmation still awaits, the GBP may then only rely on its carry advantage and reduced geopolitical/tariff threats to eventually fare better than the EUR.”

Rabobank does consider that the Pound will need stronger growth to make any headway; "Hopes for a better growth outlook in the Eurozone have altered the dynamic for EUR/GBP. Our year end forecast of EUR/GBP0.83 assumes that UK growth can recover during the course of the year and most recent UK GDP indications have not been encouraging."

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TAGS: Currency Predictions Pound Euro Forecasts