The Pound to Euro (GBP/EUR) exchange rate dipped sharply to 3-week lows below 1.1450 this week as risk appetite deteriorated sharply before a rebound to near 1.1500 amid a recovery in equities as President Trump backed away from the threat of fresh tariffs over Greenland.
Commerzbank is backing only one Bank of England (BoE) rate cut this year which will help protect the Pound and is forecasting GBP/EUR gains to 1.1630 by the first quarter of 2027.
According to Commerzbank, the German economy will recover this year as the expansionary fiscal policy takes effect.
It expects Euro-Zone inflation will hold close to 2% and, in this context, it expects that the ECB will hold the deposit rate at 2.0% throughout 2026.
Commerzbank expects that the UK economy will struggle to gain any momentum with GDP growth held to 1.2% this year.
With inflation holding above the 2% target, the bank still expects that the BoE will have to be cautious on monetary policy and expects only one rate cut during 2026.
Markets are pricing in two cuts for the year and if rates are held at 3.50%, this policy stance would tend to underpin the Pound.
