The Pound to Euro (GBP/EUR) exchange rate has consolidated around 1.1550 with solid resistance close to the 1.1600 area, but buying on dips towards 1.15.
Barclays sees downside Pound risks in the short term with a June 2026 GBP/EUR forecast of 1.1360, but it expects a recovery to 1.1630 by the end of the year.
According to Barclays, the Pound’s risk premium is likely to increase in the short term amid economic and political factors. The bank considers that a more expansionary fiscal policy is likely to combat the negative effects of the spike in energy costs with the May local elections increasing pressure for action as well as posing additional risks to Prime Minister Starmer.
These concerns are liable to undermine the Pound, but Barclays expects that there will be a rebound in confidence later in the year.
Markets are pricing in at least two Bank of England rate hikes this year, but Barclays is expecting rates to be held at 3.75% while it also expects that the ECB will sanction two rate hikes which would take the refi rate to 2.65% and limit scope for GBP gains.
