Pound to Euro Week Ahead Forecast: Overvalued Sterling "Vulnerable to Correction"

April 27, 2025 - Written by Tim Boyer

STORY LINK Pound to Euro Week Ahead Forecast: Overvalued Sterling "Vulnerable to Correction"

Foreign exchange analysts at Danske Bank now forecast the Pound Sterling (GBP) will slide to 1.1365 against the Euro (EUR) on a 12-month view amid a persistent slide in global risk appetite.

In contrast, Credit Agricole, expects Pound to Euro (GBP/EUR) exchange rate gains to 1.2050 by the end of 2025 with the Euro overvalued.

During the week, GBP/EUR was able to secure a tentative net gain to 2-week highs near 1.1730. Risk conditions were more benign during the week which helped underpin Sterling.

According to Credit Agricole; “we note that our estimates of short-term fair value that are based on FX drivers like relative rate spreads and risk aversion suggest that the GBP is looking quite undervalued vs the EUR.”

It added; “the very overvalued EUR/GBP could remain vulnerable to a correction lower in the near term.”

ING commented that there will be scope for further GBP/EUR gains if it can break above 1.1730.

The Pound will tend to gain support if there is a further improvement in confidence, but any renewed setback would put the currency under renewed pressure.


Danske Bank commented; “The key risk to seeing EUR/GBP trade substantially higher than our forecast is a sharp sell-off in global risk and/or renewed focus on the UK’s fragile fiscal position.”

MUFG noted the importance of safe-haven demand and noted; “the recent divergence in TWI performances for EUR and GBP with EUR supported by safe-haven demand that GBP is unlikely to see.”

Danske expanded its analysis; “While we see domestic factors and the relative growth outlook between the UK and the euro area as GBP positives, we think the global investment environment will be in the driver’s seat for EUR/GBP in the coming months.”

It added; “An investment environment characterised by elevated uncertainty, widening credit spreads and a positive correlation to a USD negative environment, in our view, favours a weaker GBP. The UK runs a large current-account deficit, which makes GBP vulnerable when capital inflows fade.”

As far as monetary policy is concerned, there are very strong expectations that the Bank of England will cut interest rates by a further 25 basis points to 4.25%.

In comments this week, Governor Bailey expressed concerns over the global growth outlook due to trade tariffs, but there are also inflation concerns which will make policy setting notably difficult.

Caution would help underpin the Pound on yield grounds.


MUFG commented; “While a 25bp cut at the next MPC meeting on 8th May is highly likely and fully priced, further cuts beyond could quickly be questioned if supply-side issue create inflationary pressures in the UK. Much stickier wage growth could force the BoE into a more cautious approach to rate cuts given fiscal uncertainties and Gilt market concerns.”

There has been dovish commentary from ECB officials with Governing Council member Rehn, for example, stating that the ECB should not rule out a larger 50bp rate cut if the conditions supported a bigger move.

There are expectations that there will be a further rate cut in June.

MUFG added; “Disinflation and the demand shock are the focus underlining rate cut prospects.”

Credit Agricole noted that Euro gains will curb Euro-Zone growth and put downward pressure on inflation.

It added; we believe a continuation of the recent EUR strength could be self-defeating as it would increase the risk of a more dovish ECB pivot.

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TAGS: Currency Predictions Pound Euro Forecasts