UK analysts expect EUR/GBP to move higher as fading BoE rate-hike bets and autumn Budget concerns expose the Pound Sterling to renewed selling pressure.
The Euro to Pound exchange rate (EUR/GBP) held near 0.8580 on Thursday, with Rabobank favouring further gains as the summer draws to a close.
EUR/GBP has recovered from July’s low near 0.8455 after Sterling’s earlier rally ran out of steam.
The pair fell 0.72% last month, but has since climbed for three consecutive sessions and is up around 0.27% in August.
Rabobank notes that the Pound is now the third-worst performing G10 currency over one month, ahead of only the Swiss Franc and US Dollar.
“This performance may in part be a function of pared-back expectations regarding BoE rate hikes,” the bank said.
It may also reflect a measured response to the new UK government. Political news is likely to remain limited while Parliament is in recess, but attention is already turning towards Chancellor Healey’s October 28 Budget.
EUR/GBP has rebounded from below 0.8470 and is now testing the upper end of its August range.
Prime Minister Burnham has promised growth across the country while remaining within the existing fiscal rules and avoiding tax increases on workers. The unresolved issue is how the government intends to pay for its plans.
“Some news regarding the forthcoming budget has been seeping out and this could be setting up both the gilts market and GBP for friction into the autumn,” Rabobank said.
The government is reportedly considering a more flexible definition of infrastructure spending and equity investments as assets, potentially creating another £9bn of room.
While markets may tolerate extra borrowing if it funds credible growth projects, Rabobank warns that it would still imply greater Gilt issuance, which “could weigh on gilts prices and unsettle the pound”.
EUR/GBP Outlook: Rabobank Targets a Break Above 0.8588
Monetary policy presents a second downside risk for Sterling.
Rabobank believes markets continue to overestimate the likelihood of another Bank of England rate hike this year, particularly if energy prices ease as geopolitical tensions cool.
“Although three members of the MPC voted to hike rates at the July policy meeting, we anticipate that there is a high bar to further members moving camps,” the bank said.
Governor Bailey has highlighted slower services inflation, weaker household demand and a looser labour market as reasons to expect inflation pressure to fade.
“These arguments indicate a strong reluctance by Bailey to tighten policy,” Rabobank said. “In our view, the Bank is likely to keep interest rates on hold for the remainder of the year.”
The latest bank consensus shows median EUR/GBP forecasts rising above current levels into late 2026 and 2027.
Rabobank expects a repricing towards unchanged Bank Rate, combined with pre-Budget nervousness, to put the Pound under pressure.
“We favour buying EUR/GBP on dips to the 0.8550 area,” the bank said. “A break above the recent high in the 0.8588 region could increase upside potential.”
The immediate range remains tight, but the balance of risks is shifting. Sterling’s rate support is fading just as the UK’s fiscal debate starts to return.
EUR/GBP remains 1.66% lower in 2026, although the pair has recovered sharply from July’s lows.
