– Written by
Frank Davies
STORY LINK Pound-to-Euro Forecast: Sterling Eyes 1.19 after GDP Surprise
Global Turbulence Fails to Derail Pound, GBP/EUR Holds Near 16-Month Highs
The Pound to Euro (GBP/EUR) exchange rate maintained a firm overall tone at the end of the week, holding close to 16-month highs after briefly retreating during Thursday’s risk-off trading.
GBP/EUR had climbed above 1.1850 before slipping back as a sharp sell-off in global technology stocks triggered fresh demand for government bonds and unsettled risk appetite.
Sterling subsequently regained ground, leaving the pair close to its strongest levels since June 2025.
Better-than-expected UK GDP data provided some underlying support, although the immediate market reaction was limited as investors focused on turbulence across global equity and credit markets.
Asian technology shares suffered particularly heavy losses as concerns intensified over the debt-funded expansion of the artificial-intelligence sector.
Global markets stabilised somewhat on Friday, but concerns over stretched technology valuations and heavily leveraged AI investment remain important risks for sentiment.
Save on Your GBP/EUR Transfer
Get better rates and lower fees on your next international money transfer.
Compare TorFX with top UK banks in seconds and see how much you could save.
The Pound can be vulnerable during periods of intense risk aversion, although this has been offset in GBP/EUR by continued weakness in the Euro and confidence that the Bank of England will raise interest rates in November.
UK Growth Surprise Reinforces BoE Hike Expectations
The Office for National Statistics reported that UK GDP increased 0.1% in August compared with consensus forecasts for a 0.1% contraction and following 0.4% growth in July.
Production increased 0.8% on the month, while construction contracted 0.2% and services output was unchanged.
GDP expanded 0.7% in the three months to August, with growth dominated by the services sector.
Annual growth accelerated to 2.1%, its strongest pace since October 2022.
PwC senior economist Jake Finney commented; “On its current trajectory, the UK is likely to record growth comfortably above 1% this year, which would probably be enough to make it the second-fastest-growing economy in the G7.”
Deutsche Bank chief UK economist Sanjay Raja also highlighted the strength of the recent performance; “The good news? The UK’s resilience story continues. It’s hard to overstate how strong the UK performance has been all year. The UK economy remains the fastest growing G7 economy.”
He nevertheless warned; “Undoubtedly, there may be some hiccups to come in the run up to year end, especially as energy prices continue to bite household incomes, and higher rates continue to drag on spending and investment.”
The stronger-than-expected monthly figures reinforced expectations that the Bank of England will raise Bank Rate to 4.0% at its November meeting.
A Reuters poll published last week found 54 of 63 economists expect a 25-basis-point increase next month, although there is much less agreement over whether further tightening will follow.
Pantheon Macroeconomics chief UK economist Rob Wood commented; “In short, we have to shift from describing UK growth this year as resilient to calling it strong. This makes the MPC’s next interest rate decision straightforward. The MPC currently faces no trade-off between high inflation and weak growth.”
He added; “So we expect the MPC to hike in November and February, with risks skewed to further hikes next year if energy prices fail to fall back soon.”
French Bond Stress Keeps Euro Vulnerable
The Euro remains hampered by concerns surrounding French government finances and the broader Euro-Zone bond market.
French 10-year yields have climbed towards 4.9%, while the spread over equivalent German debt remains close to 140 basis points.
The International Monetary Fund considers the current rise in French yields manageable, but warned that persistently high borrowing costs would increase pressure on the government to deliver a credible medium-term fiscal consolidation plan.
French bond-market liquidity has also deteriorated sharply during recent periods of stress, with highly leveraged hedge-fund positioning contributing to greater volatility.
The pressure has complicated the outlook for European Central Bank policy.
ECB President Christine Lagarde said over the weekend that the recent increase in Euro-Zone borrowing costs will itself act as a brake on growth and inflation.
The ECB is still expected to tighten policy again in December, but tighter financial conditions could limit how far rates ultimately rise.
For GBP/EUR, the 1.1850 area remains the immediate resistance level.
A decisive break above this region would strengthen the case for a move towards 1.1900.
On the downside, 1.1800 should provide initial support, followed by the 1.1750-1.1780 region.
For now, stronger UK growth, expectations of a November BoE hike and continued French fiscal concerns leave the underlying balance tilted in Sterling’s favour.
International Money Transfer? Ask our resident FX expert a money transfer question or try John’s new, free, no-obligation personal service! ,where he helps every step of the way,
ensuring you get the best exchange rates on your currency requirements.
TAGS: Pound Euro Forecasts
