Pound-to-Euro Week Ahead Forecast: Renewed Downward Pressure

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Pound Sterling is turning lower against the euro following a brief reprieve.

The pound to euro exchange rate (GBP/EUR) is forecast to end the week at lower levels as French politics fade as a concern and UK economic data come back to the fore.

GBP/EUR peaked at 1.1520 last Wednesday following a week-long rally, helped in part by a broadly weaker euro on account of renewed French political uncertainty and a batch of sub-par German economic data.

But, a new political settlement in France has been reached, with the reappointment of Prime Minister Sébastien Lecornu, who named a new government on Sunday evening.

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Based on average GBP/EUR rates observed in July.

Having quit last Monday, Lecornu is back to try and deliver a 2026 budget and restore political stability following weeks of turbulence that have shaken business and market confidence.

With French political uncertainty fading, the euro recovers. Aiding that recovery is the late Friday selloff in the dollar linked to renwed China-U.S. trade war fears.

2025 has taught us that the euro is the go-to alternative when the dollar is under pressure owing to trade war fears. The broad euro strength that emerges during these episodes tends to also weigh on GBP/EUR.

GBP/EUR's fall from last week's high at 1.1520 confirms the existence of a downward sloping trendline that is dictating action on a multi-week timeline, in place since August 14:

At the time of writing on Monday the exchange rate is looking to break below the nine-day exponential moving average, which is the blue line in the chart.

The rule of thumb is that a daily close below this line would signal the pair has re-entered a short-term downtrend, which would advocate for further losses in the coming five days.

A retreat to 1.1460 is our prefered stance for the week ahead. Beyond here, on a multi-week timeframe, a move to the key support at 1.1413 is visible, and then a subsequent decline to 1.11 by year-end.

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The coming week is full of interest: how does the U.S.-China trade flare-up evolve? If tensions fade further, then the euro could retreat, offering GBP/EUR the opportunity to recover.

Domestic data is also on tap: watch Tuesday's labour market report for further evidence of cooling wage pressures and increasing unemployment, all courtesy of a slowing economy and the lingering effect of the government's National Insurance increase.

This will inevitably raise bets for further interest rate cuts at the Bank of England, which will weigh on the pound.

"We also look for the ILO unemployment rate to stabilise at 4.7% in August, though risks are a little to the downside. We expect private sector regular pay to drop to 4.5%," says a weekly economics note from JP Morgan. "The still weakening labour market should gradually make the case for cuts to resume next year."

Of course, this rise in bets for a November rate cut will fly in the face of the reality that UK inflation is nearly double the Bank's 2.0% target, which will increase scrutiny on the Bank's credibility and the prospect of a UK currency debasement.

This is hardly constructive for sterling's outlook.

Thursday brings a monthly GDP update, where a 0.2% monthly growth figure is anticipated for August. Anything above this could offer the pound a boost; anything below will weigh.

Note too that parliament returns from the party conference recess, which means an inevitable increase in speculation about the contents of next month's budget.

Nothing good can come out of this: expect a series of speculation about which taxes will be invented and which taxes will be raised.

Inevitably, this tinkering won't raise the required sums, meaning we will be back here next year.

The UK's public finances are deteriorating and this will ensure bond yields stay elevated and the pound remains at risk of a confidence crisis.

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