Pound Sterling Outlook Stays Constructive Against Euro and Dollar

🎯 GBP/EUR year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

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Pound sterling retains a constructive outlook against both the euro and the dollar as supportive global conditions continue to underpin demand.

The pound to euro rate (GBP/EUR) has risen to 1.1588, leaving it just short of the 2026 high set a day earlier at 1.1597 and extending a well-defined post-November uptrend.

The pound to dollar rate (GBP/USD) surged strongly in late January, reaching its highest level since 2022 at 1.3850 before paring gains and unwinding overbought conditions.

Those advances are closely linked to favourable global macro conditions and the steady rise in equity markets. Crucially, the equity rally is no longer concentrated in a narrow group of large technology stocks, but is showing broader participation across sectors and regions.

In the United States, the Russell 2000 rose while the S&P 500 fell, even though around 55% of S&P 500 constituents finished higher on the day, highlighting that weakness was driven by a small number of heavyweight names.

Globally, that rotation has brought renewed attention to markets with a more traditional sector mix, helping the UK’s equity market outperform. The FTSE 100 is up around 6% so far this year, placing it among global leaders and reinforcing the pound’s positive correlation with improving risk appetite. 

Above: GBP/EUR is a 'risk on' play at present, tracking global equity markets higher.

For GBP/EUR, the uptrend established since November remains both clear and technically robust.

A simple projection of recent momentum points toward levels around 1.1650 by month end if current conditions persist.

That said, following recent gains, a period of near-term consolidation or a shallow pullback toward the 1.1560 to 1.1540 area would not be unusual.

🎯 GBP/EUR year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

In GBP/USD, the early-February pullback already appears to have run its course, with buyers emerging around 1.3650 to stabilise the pair.

Sterling’s rise to multi-year highs against the dollar in late January and multi-month highs against the euro earlier this week reflects a broader bullish global macro backdrop.

That environment is closely linked to the US administration’s desire to run the economy hot, using a combination of fiscal and monetary levers.

Above: GBP/USD benefits from the U.S. administration's 'weak dollar' policy.

Strong fiscal stimulus through tax cuts, expectations of lower Federal Reserve interest rates and tolerance for a weaker dollar are all part of that mix.

“The US administration is planning to run the economy hot,” says Dario Perkins, economist at TS Lombard.

“All macro policy levers are in play - fiscal, monetary, credit and bank deregulation,” Perkins says.

🎯 GBP/USD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

That combination is typically bullish for equities and bearish for the dollar, a backdrop that favours steady upside in both GBP/EUR and GBP/USD.

Looking further ahead, strategists see scope for equity markets to perform well despite an elevated risk environment.

“We back another ‘brave new world’ year in 2026, with geopolitical dynamics and fiscal dominance driving price action across all financial markets,” says Jonathan Stubbs, analyst at Berenberg Bank.

“Access to strategically important industries and resources will be key, and despite the heightened risk environment, we expect a decent year for equities,” Stubbs adds.

In the near term, attention will turn to the Bank of England, which is set to dominate sterling discussion.

However, major policy surprises are not expected, suggesting any reactive moves in the pound are likely to be faded.

With the broader macro environment remaining supportive, downside risks for sterling appear well protected against both the euro and the dollar.