Rabobank predicts the Euro-Pound rate at 0.87 in three months as fading BoE hike bets and the October Budget threaten Sterling’s recent resilience.
The Euro to Pound (EUR/GBP) exchange rate has edged up towards 0.8567, with the Euro gaining around 0.2% over the past 48 hours as Sterling’s recent outperformance begins to lose a little momentum.
The move is still small, and Rabobank is not calling for a sudden GBP Sterling reversal.
Its view is more patient: the UK economy has held up better than expected, but the combination of an uncertain Bank of England outlook and a difficult autumn Budget should gradually tilt EUR/GBP higher.
“We expect further range trading in EUR/GBP over the coming weeks, with a mild upside bias later in the year as fiscal realism weighs and BoE rate hike risk is further priced out,” Rabobank said.
The bank maintains a three-month EUR/GBP forecast of 0.87.
EUR/GBP has climbed from around 0.8552 to 0.8567 over the past two days, with the latest price sitting close to the upper end of its 48-hour range.
Rabobank readily acknowledges that Sterling has plenty going for it in the short term.
“The pound is sitting pretty this morning as the top performing G10 currency on a 1-day view,” the bank said, although its performance over longer periods is better described as “middling”.
Recent UK data have also been difficult to square with a particularly bearish Pound view.
Second-quarter GDP grew 0.4% quarter-on-quarter, real GDP per head rose by the same amount, and the August composite PMI reached 52.5.
Rabobank argues that both Britain and the Eurozone have therefore proved surprisingly “resilient” through the energy shock associated with the Iran conflict.
That helps explain why Sterling has held up despite expectations earlier in the summer that higher energy costs would hit UK activity much harder.
The BoE Is Where Rabobank Sees Sterling Risk Building
The interest-rate story is less supportive.
“It remains Rabobank’s central view that the MPC will continue to side-step a rate hike this year,” the bank said.
Markets still attach some probability to additional Bank of England tightening, so a prolonged hold could gradually remove part of Sterling’s yield advantage.
“Since the market still sees some risk of higher rates this year, steady policy, in line with our view, could undermine the pound.”
That argument is broadly consistent with our recent EUR/GBP coverage of ING, which also saw diminishing BoE tightening expectations creating room for a higher Euro-Pound rate.
ING’s 0.8570/80 level was essentially a near-term call and is already being tested, whereas Rabobank’s 0.87 forecast requires a more persistent erosion of Sterling support over the next few months.
October Budget Could Become the Bigger Sterling Test
Fiscal policy may ultimately matter more than the next few UK data releases.
The government has already confirmed that the UK Budget will be held on 28 October, and Rabobank expects markets to scrutinise how Chancellor John Healey intends to reconcile new spending ambitions with already-stretched public finances.
Prime Minister Andy Burnham has promised that “we won’t take risks with people’s finances or their pensions or homes”, while also pledging help with living costs.
The problem is funding the broader programme. Social-care reform, infrastructure investment, council-house building, greater state involvement in utilities and higher defence spending all come with significant price tags.
July’s public-finance numbers offered an early warning, with public sector net borrowing recording a £1.8bn deficit when markets had expected broadly balanced accounts.
Rabobank says that result “highlights the fragility of the government’s accounts in the approach to the budget”.
Higher gilt yields would make that arithmetic still harder by raising the cost of servicing Britain’s debt pile.
“Investors are clearly anxious about governments with high debt and deficits, and this would not be a good moment for Chancellor Healey to draw attention to the UK’s fiscal strains,” Rabobank said.
This is where the 0.87 forecast starts to make more sense.
A resilient economy can keep Sterling supported for now, while softer Dollar conditions should also help GBP/USD independently.
EUR/GBP, however, is more exposed to whether investors decide that UK fiscal risk deserves a larger premium heading into October.
We found a similar medium-term bias in our August bank forecast survey, where most institutions expected some of Sterling’s strength against the Euro to fade rather than extend indefinitely.
Rabobank’s conclusion is not that the UK economy is rolling over.
Quite the opposite: better growth is one reason the Pound has stayed relatively firm.
The bank simply thinks the supportive data may struggle to outweigh fiscal nerves and the removal of BoE hike expectations as autumn approaches.
That leaves 0.87 as a modest rather than dramatic call, but one which would mark a clear shift away from the Sterling-dominated trend seen through much of 2026.
