Pound-to-Euro Forecast: Goldman Revision Points to €1.2050
Goldman Sachs has become more positive on Pound Sterling against the Euro near term, while warning that rich valuations could limit lasting gains.
The Pound to Euro exchange rate slipped 0.15% to €1.1979 on Monday, remaining close to the level implied by Goldman Sachs’ newly revised three-month forecast.
The bank has cut its EUR/GBP projection for that horizon to 0.83 from 0.86, a change favouring Pound Sterling.
Inverting the new forecast gives approximately £1 to €1.2050, according to Exchange Rates UK calculations.
That represents only around 0.6% further upside from Monday’s rate, despite the substantial revision to Goldman’s previous view.
Goldman still expects Pound Sterling to give back ground over a longer horizon, making this a slower projected reversal of its strength rather than a forecast of uninterrupted gains.
Euro weakness has done much of the work
Goldman’s analysis challenges the idea that October’s move was primarily a vote of confidence in the UK economy.
Its trade-weighted measure of Pound Sterling, excluding the Euro, was close to flat over the month.
Goldman writes: “Meanwhile, the ubiquitous sell-off in the Euro versus both energy importers and exporters alike suggests to us that this month’s move is more a function of shifting fiscal, activity and policy risks, than purely of shifts in energy terms of trade.”
The UK Budget largely avoided an immediate adverse market surprise, although Goldman says important spending questions have been deferred until next year.
France still faces the task of securing a credible fiscal plan: its finance ministry responded to Fitch’s negative outlook by calling for a responsible budget to be adopted before year-end.
Goldman writes:
“A rotation in fiscal premia from the UK to Europe also helps shift the distribution of near-term EUR/GBP risks to the downside, but we remain more cautious on Sterling’s longer-term outlook.”
The revision is more supportive near term than Crédit Agricole’s recent forecast for Pound Sterling to retrace some of its gains.
Expensive Pound Sterling still faces a limit
The approaching BoE decision on Thursday 5 November can support the currency without resolving Goldman’s reservations about its valuation.
“Even with hikes in November and February, BoE hike pricing continues to look stretched relative to G10 peers, and valuation remains a clear challenge for Sterling.”
“This is true both structurally (where our GSDEER model suggests Sterling has the highest valuation in G10) and cyclically (where EUR/GBP’s sell-off has been at odds with rate differentials for much of this year).”
Its 12-month EUR/GBP forecast is higher than the new three-month projection, allowing the Euro to recover some of its losses.
Those valuation estimates do not identify when the currency will reverse.
UBS favours the income advantage
UBS also prefers Pound Sterling to the Euro, but its case includes the interest income available from holding the currency.
Its retained end-2026 EUR/GBP forecast is 0.84, which would put GBP/EUR slightly below Monday’s level, with a modest Euro recovery envisaged during 2027.
UBS’s Constantin Bolz and Maelle Quillevere write: “The BoE’s expected hiking cycle, resilient UK economic data, and short sterling positioning should help offset a moderate EUR recovery. Sterling’s higher yield also makes the case for the GBP more compelling from a total-return perspective than the spot outlook alone suggests.”
The positioning evidence cited by UBS concerns Pound Sterling against the US Dollar, not a measured short position in GBP/EUR.
More interest income can improve an investor’s overall return without producing a higher Pound-to-Euro conversion rate.
At the end of last week, UBS wrote: “Markets are already almost fully pricing an ECB rate hike in December, leaving relatively limited scope for additional EUR support from near-term rate expectations.”
It sees a potential route towards improved Euro sentiment: “In 2027, we see room for the euro to regain some lost ground from oversold levels, particularly if France succeeds in passing a budget by year-end and fiscal concerns start to ease.”
It also identifies a nearer risk to its currency preference: “A more dovish-than-expected BoE would also challenge our preference for sterling.”
What This Means for GBP/EUR
With the exchange rate valued at almost €1.20, Pound Sterling is already close to the level implied by Goldman’s revised three-month forecast. The upgrade offers support for holding near recent levels, but leaves much less prospective upside than the size of the forecast change might suggest.
A BoE message that validates further tightening, alongside continued French fiscal uncertainty, would favour Pound Sterling. Cautious guidance or progress towards a credible French budget could instead allow the Euro to recover.
