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Pound Sterling is forecast to retain a soft tone in the coming week.
The Pound to Euro exchange rate is in a near-term downtrend, and further losses are likely as a result in the coming week.
The pair is capped by its nine-day exponential moving average (EMA), which it was unable to assail in a recent recovery attempt that took it to a high of 1.1750 on Friday.
That peak proved fleeting, with the Euro rebounding strongly through the day, not just against the British Pound, but against the majority of its G10 peers.
There was no clear news signal for the rebound, but it does speak of the enduring demand the Eurozone’s single currency has found, and continues to find, in 2025.
“The EUR has been the main vehicle for expressing dollar bearishness since ‘Liberation Day,’ having outperformed most major currencies across G10 and EM. It will likely continue to take its cue from US economic developments and tariff headlines, which generate near-term upside risks,” says Lefteris Farmakis, an analyst at Barclays.
Above: GBP/EUR at daily intervals.
Momentum signals advocate for further losses, with the RSI at 40 and pointing lower. The nine-day EMA is also pointing lower. GBP/EUR is also trading below other major EMAs, including the 200-day, which speaks of broader pressures that leave the Pound-to-Euro down by 3.0% this year.
Given the rules-based nature of the Week Ahead Forecast model, a decline to 1.1664 is possible in the coming days, with 1.16 even possible.
Being on of 2024’s best performing currencies, Sterling has struggled in 2025 as the realities of a slowing economy bite down on GBP/EUR, as does the wider improved sentiment towards European assets now that American ‘exceptionalism’ is fading.
“We retain a broadly constructive view on the GBP, albeit with more limited upside potential versus the EUR in particular,” says Farmakis. “This is due to the single currency’s broader rebound and its impact on the trade-weighted GBP.”
Turning to the calendar, the focus will be on Eurozone inflation data out of Germany on Monday, which will give a good indication of where the Eurozone CPI inflation figure will land on release on Tuesday.
Above: Eurozone inflation profile and predictions by UniCredit.
Data already out from France and Spain beat expectations, which suggests tomorrow’s Eurozone release risks edging above the 2.3% the consensus expects.
Such an outcome is bullish for the Euro as it confirms the European Central Bank (ECB) can afford to wait when cutting interest rates further.
There are no data from the UK this week, which leaves the Pound at the whim of broader FX market sentiment. We note that the Dollar’s retreat is helping GBP/USD march to fresh highs on a regular basis, but GBP/EUR is frustrated by the ascendancy of EUR/USD.
Another headwind for Sterling is the UK’s deteriorating public finances, and the prospect of yet more tax rises from Chancellor Rachel Reeves, which could become a headwind for the Pound as we approach the Autumn budget.
“High levels of public debt are a significant vulnerability that governments can no longer ignore,” says Agustin Carstens, the head of the Bank for International Settlements (BIS).
Last week Keir Starmer scrapped his government’s plan to rein in the UK’s burgeoning budget bill, leaving UK spending free to surge to unsustainable levels.
“It is obvious that the debt [to GDP ratio] in many countries has risen quite fast in recent decades, and this trend cannot continue,” says Carstens. “We are not saying that in any particular country a fiscal crisis is imminent. But the trend is not the right one.”
Being a small, open economy, the UK would be amongst the first to find out what the constraints of unsustainable debt dynamics looks like.