Pound-Euro to Stay Supported Above 1.1430

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Pound sterling is likely to remain supported against the euro in the coming days with the floor at €1.1430 likely to offer protection against further weakness.

The pound-euro exchange rate has fallen for three weeks in succession after being rejected above 1.16, confirming that the trend has been bearish since mid-March.

That failure to breach 1.16 was not a surprise to some chart watchers - it happened at the top of the exchange rate's multi-month range. A look at the daily chart shows GBP/EUR has been caught between 1.16 and 1.1430 since July last year:

Our short-term forecast is that GBP/EUR remains above 1.1430 this week as the recent selloff subsides. Sure, falls below here remain a risk: there have been some forays below 1.1430, most notably when concerns about the UK's budget of November 2025 were heightened.

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But there are no major near-term budget-related concerns at the present time and we generally think the equilibrium point is above 1.1430 and that should keep the pair supported in the coming days.

Last week saw some consolidation emerge around 1.1460, and our expectation for the next few days is that this behaviour can continue.

Although the downside is protected, significant recovery risks are low: The May elections are now one month away and are a risk for pound sterling, as investors will worry the Labour government might pursue increasingly unsustainable left-wing spending commitments to win back the electorate, and that should ensure rallies are limited.

It's why we wouldn't anticipate a move back to 1.16 in the coming weeks.

"Sensitivity to fiscal risks and political uncertainty can weigh on sentiment," says a recent monthly forecast note from Julius Baer.

"The current concern for markets is who would replace the Prime Minister if he were to go. Angela Rayner and Ed Miliband are amongst the bookies’ favourites - but a lurch to the left wouldn’t go down well with bond markets. In this scenario, we would likely see further downside pressure on sterling and a steepening at the long end of the yield curve amid concerns about increased public borrowing," says Marc Cogliatti, Head Markets Risk Strategies at Validus Risk Management.

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At the same time, it's also hard to sell the pound when the UK's relative interest rates are higher than those of major peer economies.

The Bank of England isn't likely to cut interest rates anytime soon, which means the local interest rates will remain higher than those in Europe, which will keep GBP/EUR bid as international investors would choose to hold higher-yielding pounds over euros.