Pound to Euro Rate to Recover Above 1.20: Investment Bank Forecasts

Image © Adobe Images

The British Pound may be 2025's worst-performing major currency, but the conditions for recovery are beginning to emerge.

Recent losses have caused the Pound to trade well below the level suggested by the models at the world's major investment banks.

A look at the consensus forecasts from over 30 of the biggest investment banks allows us to get a sense of where we would expect a currency to return after periods of volatility.

In this regard, the median and mean projections are a useful resource.

The current median forecast for Q1 - which can be viewed in this free document - shows a likelihood of recovery, as the target for the Pound to Euro exchange rate is set well above 1.20.

The Pound has fallen through January, making it the year's worst-performing G10 currency. Based on current trends, forecasters who were pencilling in targets below 1.20 will contend for the prize of the most accurate forecaster in Q1.

Pound Sterling weakness follows a string of surprisingly soft economic data that suggested the government won't manage to hit its revenue targets.

GBP/EUR investment bank consensus forecast for 2025. See the median, mean, highest and lowest point targets, giving a highly accurate forecasting resource. Request it Now.

This prompted nervousness in bond markets, pushing up the cost of borrowing for the UK government and resulting in a fall in the Pound.

Nevertheless, this week sees Pound Sterling stabilise against most of its peers, including the Euro and although it's been a poor January, there are two more months to navigate before the Q1 scorecard can be drawn up.

A recovery in GBPEUR would likely require the UK to start printing some above-consensus data and for Donald Trump to impose import tariffs on the EU.

Strategists at Citibank say the Pound's selloff against the Euro is reaching its limits and a turnaround nears.

In a recent note, Citi's Global FX Strategy desk says it is time to "Short EURGBP". Strategists said the selloff in GBP would end when one of three conditions was met:

(1) global fixed income yields peak;
(2) a UK policy announcement to temper markets or a reversal in sentiment around fiscal concerns; or
(3) a move towards 0.8470-0.85 where risk/reward is more attractive for shorts.

"Condition three has effectively been met," says Citi, triggering the recommendation to sell EURGBP in anticipation of Sterling's recovery.

Also, last week's below-consensus inflation data from the UK and U.S. appear to have halted the rise in fixed-income yields, at least for now.

"We think risk/reward is attractive to try a tactical EURGBP short here against the 55wma with potential for a move back towards the multi-year lows around 0.8250," says Citi.

EURGBP at 0.8250 implies a GBPEUR target of 1.2121, implying that a recovery back to the top of recent ranges is possible.