Pound to Euro Week Rate Forecast: A Big Week Ahead

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Pound sterling navigates strengthening geopolitical currents and a host of domestic data releases.

The pound to euro exchange rate (GBP/EUR) falls to 1.1516 on Monday as markets react to news over the weekend that the U.S. would impose tariffs on the UK and EU over the issue of Greenland.

Trump says he will impose a 10% tariff on the UK and EU countries on February 01, raising it to 25% by June unless they stand aside and allow him to purchase Greenland.

The initial market reaction is negative, with global stocks and U.S. futures trading in the red. The dollar is softer, reminding us that U.S. import tariffs are associated with the 'sell America' trade that dominated the first half of 2025.

The main beneficiary of that 'sell America' trade was the euro, which is outperforming Monday and that outperformance is necessarily putting GBP/EUR under pressure.

Concerning the immediate outlook, the technical charts suggest sterling's recovery against the euro has stalled out, and downside risks are growing again and we could see sub-1.15 in the coming days as a result.

That being said, weakness should be shallow: the downside impact of the weekend's geopolitical shifts is relatively limited, with the market seeing a likelihood that the U.S. Supreme Court rules that Trump can't use tariffs in the manner he has.

Polymarket sees 70% odds this is the case. If Trump's tariffs are ruled illegal, we would imagine GBP/EUR unwinds some of the recent negativity and goes higher. The ruling is expected any day now, creating a wait-and-see stance amongst investors that ensures markets aren't falling out of bed on Monday.

Tariffs aside, it's a busy week for the pound in terms of data and there's a decent chance that the numbers prove better than expected and support pound sterling in the face of global risks.

📊 Tuesday's labour market data is the first major test of the week. "Against consensus, we think there's a risk the unemployment rate (temporarily) drops next week," says Smith.

Such an out-of-consensus outcome would trigger an upside reaction in pound sterling.

"We're also not convinced the recent signs of redundancies rising will turn into much more," adds Smith.

🛒 Wednesday's inflation numbers are the highlight of the week as they will have a direct bearing on the Bank of England's thought process.

"We see upside risk to our forecast arising from the CPI collection date. We expect December’s Consumer Prices Index report, due on January 21, to show CPI inflation ticking up to 3.3%, from 3.2% in November," says Pantheon Macroeconomics in a note to clients.

Again, an upside surprise would bolster the pound as an above-consensus reading would reinforce the view that the Bank needs to tread carefully when considering further rate cuts.

This would push back bets for a February rate reduction at the Bank, which can help the pound advance.

Pantheon points out that other surveys - the DMP, PMI and BICS surveys - all point to services price disinflation having come to an end for now.

ING says a lot depends on air fares, which unsurprisingly tend to surge around Christmas.

"There's an outside risk we get a big spike here," says Smith. "Of course, it will be unwound in January, optically it wouldn't look great for the Bank."