Pound to Euro Rate's Week Ahead Forecast: Recovery Hits the Buffers

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Pound sterling looks vulnerable to further losses against the euro this week.

The pound to euro exchange rate (GBP/EUR) opens weaker on Monday at 1.1510 as it closes in on the first line of support at 1.1506.

Softness in GBP/EUR mirrors the subdued tones in world stock markets at the start of the week, confirming this exchange rate to be relatively sensitive to the global mood music.

Investors are bothered by weekend reports that the U.S. government is seeking to sue the Federal Reserve while threatening to pursue criminal charges against the Fed's Chairman Jerome Powell over renovations to the central bank's headquarters.

Powell said in a statement that the moves show the U.S. administration is overtly seeking to unwind Fed independence.

That independence is the bedrock of U.S. financial stability and credibility and falling stocks signal investor unease.

GBP/EUR retreats to support at the nine-day exponential moving average (EMA), currently at 1.1510, which it must defend if it is to stay in a short-term uptrend.

If GBP/EUR can stay above here, then further gains in the coming days and weeks become possible, opening the door to new multi-month highs. However, a breakdown introduces the prospect of a softer path forward.

Last week saw GBP/EUR rise up and meet the 200-day EMA at 1.1563, where we had expected the rally to be challenged, as is often the case when significant MAs are encountered.

Indeed, there was enough selling interest around this technical indicator to trigger a pullback and the subsequent declines could still merely be a paring of the late-2025/early-2026 rally, meaning buying interest could ultimately return.

However, technicals can take a market only so far, and the pound will need some solid fundamental improvements to back its case for further advances.

With this in mind, we'll be watching Thursday's monthly GDP release that should show the economy returned to growth in November, having shrunk in October. If the data beats expectations, sterling can find a decent enough bid.

But it won't be until next week's release of labour market and inflation data that we receive some true 'front line' data. For the recent rally to morph into a genuine uptrend, the UK economy must start surprising to the upside.

For now, there's enough technical support in the charts to keep GBP/EUR relatively elevated, but be aware that the year's data calendar is nearly upon us.

The nature of those data will determine whether we end January higher or lower than current levels.