Image © Bank of England
Pound sterling is encountering a significant technical resistance zone against the euro.
While the UK was on holiday, the pound to euro exchange rate rose 0.22% to reach 1.1599, putting it on the cusp of the important 1.16 barrier.
1.16 marks the upper limit of a range that has been in place since July 2025 and the exchange rate has failed on numerous occasions to extend beyond here in any meaningful form. This year alone has seen three failed attempts to breach the line.
Instead, significant volumes of market orders to sell the pound in the approach to 1.16 have tended to diminish momentum, and the pair ultimately capitulates lower and back into the range.
Those looking to pay from GBP into EUR in the coming days and weeks should consider locking in a portion of the current budget at these levels in the event that resistance holds firm again and the pair fails here for a fourth time this year.
Could A Break Above 1.16 Happen This Week?
Could this be the week that pound sterling finally advances against the euro and records a series of +1.16s?
Momentum is positive and the daily chart suggests that the pair has been steadily rising since last November when Rachel Reeves's budget passed without incident. If that longer-term trend is still in place then we'd expect GBP/EUR to ultimately break through 1.16.
Fundamental support is also derived from the relative interest rate advantage the UK continues to command over the eurozone.
The Bank of England is still expected to raise rates on two occasions this year, which will ensure Britain's short-dated bonds will continue to yield more than their European counterparts.
Provided market volatility is low and sentiment is supportive, the pound-euro would be expected to benefit from inflows of foreign capital that seek higher yields.
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What Would Cause a Retreat from 1.16?
Technical barriers work by sapping momentum: ample pre-mediated and order-driven selling and major resistance points can become self-reinforcing and is a major headwind to further GBP/EUR advances.
At the time of writing on Tuesday, we are already seeing some evidence of this as GBP/EUR pares Monday's gains to test 1.1582.
Another risk is that markets reduce expectations for a Bank of England rate hike relatively rapidly. It's important to note that Bank of England bets have more space to retreat than equivalent ECB bets, because the Bank entered 2026 with rates in restrictive territory, whereas the ECB was at neutral.
A setback to global risk sentiment is another major obstacle as GBP/EUR tends to come under pressure when volatility rises, and stocks fall. The major risk here would be an escalation in the Middle East war.
However, at the time of writing on Tuesday, the talk remains one of progress towards a U.S.-Iran peace deal and reopening of the Strait of Hormuz.
The Hormuz story is interesting: de-escalation is supportive of GBP/EUR via the risk channel but could be a headwind if it encourages the Bank to start considering rate cuts again.
We think the latter risk will eventually come to the fore as we move through the second half of this year.
