The Euro to Pound (EUR/GBP) exchange rate traded at 0.8663 on Friday, close to the middle of its 2026 trading range after Sterling surrendered some of its spring gains. The pair touched lows near 0.8620 earlier this month but remains below February highs around 0.8790.
Julius Baer argues that the Pound’s resilience has been surprising given the UK’s weak economic backdrop, with Sterling still up around 0.8% against the Euro this year. The bank believes much of the support has come from a sharp repricing of Bank of England expectations rather than improving UK fundamentals.
“Sterling strength appears largely driven by a hawkish reassessment of Bank of England policy expectations.”
At one stage, markets swung from pricing two BoE rate cuts in 2026 to anticipating as many as three hikes, although that move has since partially reversed.
Julius Baer believes UK monetary policy is already restrictive enough and sees limited need for further tightening given soft labour market conditions and weaker domestic demand.
The bank also warns that UK political developments could become a growing headwind for the Pound.
“Political developments represent another headwind.”
Recent controversies surrounding Prime Minister Keir Starmer and weakening Labour polling have increased concerns over political instability and the possibility of leadership challenges.
Julius Baer argues that a combination of easing rate hike expectations and rising political risks should leave Sterling vulnerable against the Euro.
As a result, the bank maintains a softer Pound outlook and forecasts EUR/GBP rising towards 0.88, implying GBP/EUR drifting back towards the 1.14 area from current levels.
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