Pound to Euro Forecast: 1.22 in 12 Months on "Overdone Eurozone Optimism"

March 30, 2025 - Written by Frank Davies

STORY LINK Pound to Euro Forecast: 1.22 in 12 Months on "Overdone Eurozone Optimism"

Foreign exchange strategists at Goldman Sachs have a 12-month GBP/EUR forecast of 1.2200 as it considers that Euro-Zone optimism is overdone.

In contrast, HSBC expects a retreat to 1.1765 amid a lack of confidence in the UK outlook.

GBP/EUR briefly hit 3-week highs above 1.2000 during the week before a retreat to 1.1950.

Chancellor Reeves tightened welfare spending in the Spring Update and cut long-term spending growth. The OBR cut the 2025 GDP growth forecast to 1.0% from 2.0%.

Medium-term growth forecasts were revised marginally higher, but investment banks expressed reservations with the risk of further tax increases later in the year.

RBC Capital Markets commented; “The main risk that can be pointed to at almost every fiscal event is the OBR’s growth projections. The OBR have a tendency to be overoptimistic on the UK’s growth prospects mainly because they tend to be overoptimistic on the UK’s productivity performance.”

HSBC maintains a lack of confidence in the UK outlook; “We still see a risk that the MPC accelerates monetary easing in H2 2025. After all, the jobs market appears to be weakening, and the inflation we are seeing currently all appears to be “bad inflation”.

HSBC added; “It’s also possible that fiscal tightening, global uncertainty and a possible US slowdown (if such a thing materialises) further adds to economic weakness in the UK.”

The bank forecasts GBP/EUR at 1.1765 at the end of 2025.

According to Goldman Sachs; “In the case of the Euro area, FX markets appear to be giving an unusual amount of credit to distant growth prospects—likely on the possibility that more balanced global growth prospects will prompt a shift in global capital flows and an outsized FX move, like what happened in 2017.”

Goldman added; “we do not see a compelling case for further EUR/GBP upside based purely on the upside European growth news that has already been delivered. It expects a cautious Bank of England stance will also underpin the Pound.”

Tariff developments will be a key short-term element with expectations that the US will apply reciprocal tariffs and treat the Euro area more harshly than the UK.

In this context, Goldman sees scope for net Pound gains; “Looking ahead, we continue to see reasons for GBP to differentiate itself from European peers. We think Sterling should benefit from a relative resilience to US tariffs, which should be increasingly important heading into the April 2nd tariff deadline.”

Nomura is more positive on the Euro outlook; “We are still positive on the European growth outlook because of German infrastructure spending and broader EU military spending plans, see some progress on a Russia-Ukraine peace deal, and the likelihood of a possible further pricing out of ECB rate cuts.”

Socgen expects Euro-Zone out-performance and Pound losses; “EUR/GBP should be also supported by relative growth and monetary policies. Our economists forecast 2025 UK growth at 0.8% vs 1.1% for eurozone.”

Bank of America (BoA) maintains a notably positive stance on the Pound; “We continue to think that the BoE is unlikely to switch to back-to-back cuts given inflation persistence risks, recent stabilization in growth and no signs of a sharp slowdown in the labour market.”

BoA added; “We remain structural GBP bulls as the bearish consensus continues to be challenged and as the likelihood of enhanced UK-EU relations appears to be the direction of travel particularly around security and defence. We continue to favour GBP longs vs CHF and EUR.”

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TAGS: Currency Predictions Pound Euro Forecasts