Pound-to-Euro Week Ahead Forecast: Year-end Rally Mode
- Written by: Gary Howes
File image of ECB President Christine Lagarde. Image: Andreas Reeg/ECB.
Pound sterling's year-end rally against the euro looks well poised to extend.
The pound to euro exchange rate (GBP/EUR) has extended its post-budget year-end rebound, rising to as high as 1.1460 last week.
The advance is pared back to 1.1428 at the time writing Monday, but pullbacks are expected to be shallow and hold above the 50-day exponential moving average (EMA), currently at 1.1420.
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Last week's rally took the pair above the 50-day and 21-day EMAs, which is considered a technical confirmation that the outlook has shifted to a constructive standing.
Thursday's high at 1.1460 is now considered an interim resistance zone that could stymie further gains, but ultimately a cautious rise to 1.15 should occur now that the pair has crossed the aforementioned EMAs.
To be sure, we still think the year-end rebound is a relief rally and not a sign the pound's fundamentals are now more attractive than those of the euro. Indeed, the consensus of institutional analysts points to lower GBP/EUR levels in 2026.
Hence, this could be a window of opportunity for euro buyers.
Looking at the calendar, there is some interest due Wednesday when European Central Bank (ECB) Governor Christine Lagarde addresses the FT Global Boardroom event in London, where she is expected to touch on Eurozone monetary policy.
Expect her to maintain the view that interest rates are in a good place, which will broadly underpin the view the ECB won't be cutting anytime soon, which confers support to the euro.
On the following day, Bank of England Governor Andrew Bailey will address the same event and will likely verify market bets for a December 18 interest rate cut.
He could even deploy language that points to another rate rise in early 2026.
On balance this could weigh on pound sterling.
However, with the market well priced for December, and already priced for another cut by April next year, downside should be relatively shallow.
Beware that on Monday through Tuesday Bank of England MPC members Lombardelli, Taylor, Mann and Dhingra will also be on the airwaves.
The key UK data release in the coming week is October GDP, due Friday. Economists expect subdued economic momentum to have persisted, with flat growth at the start of the quarter.
This points to downside risks for the BoE’s baseline forecast of 0.3% growth in Q4, which will only encourage a sense that interest rates need to come down.
