British Pound to Euro Forecast: FTSE Surge Offsets UK Locals Election Jitters

– Written by


Tim Boyer

STORY LINK British Pound to Euro Forecast: FTSE Surge Offsets UK Locals Election Jitters

The Pound to Euro exchange rate (GBP/EUR) continues to trade close to 1.1580, with Sterling holding firm despite renewed political uncertainty ahead of the UK local elections.

Supportive risk sentiment and a strong rally in global equities, including a sharp advance in the FTSE 100, have helped offset concerns surrounding Prime Minister Keir Starmer and the broader UK political outlook, while hopes for progress in US-Iran talks have steadied markets.

GBP/EUR Forecasts: Holding Near 1.16

The Pound to Euro (GBP/EUR) exchange rate has again been blocked close to 1.16, but has held steady around 1.1580.

Overall risk appetite has held firm with sharp gains for equities on Wednesday with renewed hopes that the US and Iran can secure some form of deal which would re-open the Strait of Hormuz. The FTSE 100 index traded over 2% higher on the day.

ING maintains a negative underlying stance on the Pound and expects GBP/EUR selling on any fresh moves above 1.16.

Domestically, the near-term focus will be on the May 7th local elections. Conditions will be relatively subdued on Thursday given that there will be no media political commentary while the polls are open. There will, however, be an impact from Friday as results are released.

MUFG commented; “the government is braced for large losses but at this juncture there are no obvious moves to suggest Starmer is under immediate threat.”

It notes the unpopularity of Starmer, but technical difficulties in mounting a challenge, especially with Burnham not an MP.

According to MUFG; “uncertainties are high and in the context of potentially months of renewed political uncertainty, we continue to see increasing downside risks for the pound especially if crude oil prices rise sharply on the back of re-escalation in the Middle East.”

UK gilt yields increased on Tuesday with the 10-year yield close to the highest level since 2008, although there was a retreat back below 5.00% on Wednesday.

ING is sceptical that political considerations triggered the jump in bond yields. It added; “If that is the case, then both Gilts and sterling do face some downside risks if Thursday’s UK local election prompts a serious challenge to the current leadership of the UK Labour Party.”

The UK PMI services-sector confidence index recorded a final reading of 52.7 for April from the flash reading of 52.0. Business sentiment was still subdued while input costs increased at the fastest rate since November 2022 with the sharpest increase in output charges since the beginning of 2023.

Tim Moore, Economics Director at S&P Global Market Intelligence, commented; “April data signalled a modest recovery in UK service sector output growth after the considerable loss of momentum seen in March. However, this improvement could easily prove short-lived as new business intakes remained subdued in comparison to the start of 2026.”

There will still be concerns that higher energy prices and yields will undermine the economy.

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TAGS: Pound Euro Forecasts