Pound-to-Euro Set for 4th Consecutive Weekly Gain

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Pound sterling on course for a fourth consecutive weekly advance against the euro.

The pound to euro exchange rate reached a peak at 1.1568 Tuesday following an impressive rise of 0.60% on Monday; an unusually sizeable gain for the pair, setting it up for another weekly gain.

Monday's leap left GBP/EUR technically overbought according to the daily chart's RSI, while the 200-day moving average at 1.1565 proved to be a meaningful resistance area, and traders were happy to book gains at this level.

The pair has subsequently eased back to 1.1520 at the time of writing.

Despite the retreat over recent days, weakness is set to be shallow and we eye a move back to the nine-day moving average at 1.1510.

While above here, the short-term outlook remains constructive and we'd look for current levels to be maintained into next week's UK GDP report (due Thursday).

The pound has advanced against the euro and dollar through early 2026, extending the rally that followed the UK's November 26 budget.

"There is some evidence of relief following the long, drawn-out wait for last year’s fiscal announcements," says Jane Foley, Senior FX Strategist at Rabobank.

Negativity was in abundant supply ahead of a budget that provided another set of hefty tax rises and scant spending discipline.

Yet, the contents of the budget were well telegraphed in advance and there were no unusual surprises that might have upset markets and fed further bets against sterling.

"So far this year, GBP has outperformed both the EUR and the USD. This suggests that speculators are continuing to exit the short positions built in the approach to the UK’s November budget," says Foley.

With constructive technical indicators behind it, a constructive GDP reading next week can help sterling exchange rates defend recent gains and even build rise to fresh highs.

However, risks are still plentiful, with some analysts warning there's reason to believe the currency could yet the year lower than where it started.

Reasons include the May elections, where a heavy defeat for the Labour Party could call time on Prime Minister Keir Starmer and Chancellor Rachel Reeves.

The installation of a left-leaning replacement could upset markets that are already cautious about the UK's fiscal prospects owing to its elevated debt levels and poor productivity dynamics.

What We're Watching...

📈 Global sentiment: Currently positive with UK and European stocks outperforming. This usually aids GBP/USD and GBP/EUR upside.

📊⬆️ UK data: It's been quiet this week, but next week we receive monthly GDP data for November. Here, a recovery from October's -0.1% reading is expected. A big gain can help UK momentum.

📈 Near-term tactical setup: GBP remains in a short-term uptrend against GBP/USD and GBP/EUR.

📉 Medium-term setup: GBP faces familiar headwinds this year in the form of UK debt, slow growth and faster pace of Bank of England rate cuts. These could limit GBP gains in coming months. 

"The pound faces specific domestic constraints that should lead to an outright decline... the Bank of England (BoE) is expected to continue easing monetary policy in 2026 to support a sluggish UK economy," says Sergio Capaldi, Fixed Income Strategist at Intesa Sanpaolo.