Pound to Euro Rate Gives Away 2026 Gains

Above: The GBP/EUR advance failed at the 200-day exponential moving average.

Strategists expect further losses from here.

The pound to euro exchange rate (GBP/EUR) recorded its single biggest daily drop since November on Tuesday.

The pair fell 0.56% on the day to reach 1.1458, a level last at the start of the month, ensuring the 2026 advance has been effectively wiped out, and with it the pair's uptrend.

The failure to pass 1.1560 and the turnaround now shift the pair short-term bearish.

The Tuesday selloff was triggered in part by a soft UK labour market reading that showed yet another month of rising unemployment. However, the scale of the move can't be explained by domestic data alone.

The lion's share of the decline in GBP/EUR looks to have been linked to a selloff in stock markets in response to rising geopolitical tensions. Reuters currency analysts remind us in a note out Tuesday the move was "influenced by stock losses (euro is safer-haven than pound)."

Strategists at Nomura, the investment bank, reiterate they are sellers of the pound against the euro in light of recent developments.

"The latest intensification of geopolitical tensions by US President Trump on Greenland is more likely to result in a return to the “Sell America” theme seen in April 2025, in our view, which would benefit the euro area as one of the few genuine alternative destinations for investments in terms of size and liquidity," says Dominic Bunning, Head of G10 Strategy at Nomura.

The odds of a major tariff escalation between the EU and U.S. have risen as the U.S. President makes clear his intent to take Greenland off Denmark. A 10% import tariff on European goods is likely from February 01 as a result, rising to 25% in June.

Above: 'Sell America' theme showing signs of returning" - Nomura.

In this zero-sum game, there's little to negotiate from a European perspective, making tariffs all the more likely.

Nomura targets a move in EUR/GBP to 0.8950, which equates to a move in pound-euro to 1.1173.

"The euro area accounts for a significant portion of US external liabilities, and while this masks some beneficial ownership from elsewhere routed through the euro area, it is clear that a rotation out of US investments could have a significantly positive impact on EUR," says Nomura.

The trade also relies on the following fundamentals:

● The Eurozone's increasingly supportive balance of payments data
● Positive Eurozone equity inflows
● A deteriorating UK labour market
● Risks skewed towards more rather than less Bank of England cuts