Pound-to-Euro Forecast: French Debt Risks Keep EUR Vulnerable

The Pound-Euro could strengthen if Andrew Bailey reinforces November hike expectations, while lingering French debt concerns may keep the Euro vulnerable.

The Pound to Euro (GBP/EUR) exchange rate traded sideways on Thursday, with the single currency able to stem its recent selloff, amid a correction in the US Dollar (USD).

At the time of writing, the GBP/EUR exchange rate was trading at around €1.1817. Virtually unchanged from the start of Thursday’s session.

DAILY RECAP:

The Euro (EUR) stabilised on Thursday as a pullback in the US Dollar (USD) offered the single currency some temporary relief from concerns over France’s ongoing debt crisis.

USD exchange rates slid through the start of the European session amid an ongoing correction following Wednesday’s stronger-than-expected US inflation figures, with the US currency getting caught up in the wider selloff in AI tech stocks.

However, the Euro’s upside potential was limited as France’s fiscal challenges remained a key source of concern for EUR investors, with markets extremely doubtful the government will succeed in pushing its 2027 budget through parliament amid considerable opposition to the proposed spending cuts.

While stuck in a narrow range against the Euro, the Pound (GBP) pushed higher against most of its other peers on Thursday, following the publication of the UK’s latest GDP data.

August’s month-on-month growth figures saw the UK record a modest 0.1% expansion, down from 0.4% in July, but beating forecasts for a 0.1% contraction.

The surprising resilience of the UK economy was encouraging for GBP investors, as it raised the odds of the Bank of England (BoE) delivering an interest rate hike at its November policy meeting to over 90%, while also relieving some of the pressure on Chancellor John Healey as he prepares to deliver his Autumn budget later in the month.

Near-Term GBP/EUR Forecast: Hawkish BoE Bailey Remarks to Strengthen Sterling?

Turning to the end of the week, markets will look to a speech by BoE Governor Andrew Bailey for fresh impetus in the Pound Euro exchange rate.

Sterling sentiment may strengthen if Bailey is more explicit in signalling that the bank is about to enter a new tightening cycle, particularly if his comments boost bets for further hikes past next month.

Meanwhile, the Eurozone’s finalised CPI figures for September are expected to confirm that inflation in the bloc accelerated to a dizzying 3.8%, but they may have little impact on the Euro as the European Central Bank (ECB) remains cautious regarding further tightening.

Our currency coverage draws on live market data, official economic releases and published bank research.