Pound to Euro Week Ahead Forecast: GBP/EUR to Hold €1.18

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.1831, down about 0.2% from last week’s opening levels.

Pound (GBP) Faces Challenges Amid UK Economic Data

The Pound (GBP) experienced significant headwinds at the beginning of last week following the release of the UK’s latest labor market report. While wage growth in November surpassed expectations, a slight rise in unemployment dampened investor confidence. This development heightened speculation about a potential Bank of England (BoE) interest rate cut in February, putting pressure on Sterling.

Midweek, Sterling faced further setbacks as the UK’s public borrowing figures revealed a larger-than-anticipated deficit. This added to concerns over the mounting cost of UK debt and further sapped market sentiment toward the Pound.

Although the GBP/EUR exchange rate experienced an upswing later in the week, gains were short-lived. This came despite UK services PMI data exceeding forecasts, reflecting ongoing challenges for Sterling.

Euro (EUR) Strengthened by USD Weakness

The Euro (EUR) began last week on a strong note, benefiting from its negative correlation with the US Dollar (USD). A sharp decline in the USD ahead of Donald Trump’s inauguration boosted the single currency.

However, on Tuesday, a larger-than-expected drop in German economic sentiment slightly tarnished the Euro’s performance. Despite this, the Euro retained most of its early gains until midweek.

The single currency faced some pressure as European Central Bank (ECB) officials hinted at possible rate cuts. ECB policymaker Yannis Stournaras suggested the bank might accelerate monetary easing if US tariffs target the Eurozone.

Toward the end of the week, the Euro regained momentum, buoyed by renewed USD weakness and unexpectedly strong Eurozone PMI figures.

GBP/EUR Forecast: Will the ECB Rate Decision Impact the Euro?

Looking ahead, the ECB’s first interest rate decision of the year is expected to drive significant movement in the GBP/EUR exchange rate. While a rate cut has already been priced in by the markets, any dovish commentary from ECB policymakers could place additional pressure on the Euro. If the central bank signals the need for further monetary easing in the coming months, the single currency may face further headwinds.

The publication of the Eurozone’s latest GDP figures could also influence EUR exchange rates. A slowdown in economic growth during the final quarter of 2025 may weaken the Euro further.

Meanwhile, with no major UK economic data scheduled for release, the Pound is likely to remain sensitive to broader market trends and risk sentiment. Sterling’s movement could also be influenced by developments in global markets and investor appetite for riskier assets.