A new survey of major investment banks suggests the pound is overvalued against the euro, with forecasts pointing to a potential 300-pip decline by year-end. Currency planners and businesses may need to prepare for a weaker GBP/EUR rate
Recent forecasts from leading investment banks and financial institutions indicate that the pound sterling may be set for a notable correction against the euro in the coming months. According to a consensus survey compiled by Bloomberg and distributed by World Wide Currencies, the median projection for the GBP/EUR exchange rate suggests the pound is currently trading around 300 pips above where models expect it to finish the year. This points to a potential downside risk for those holding or planning to convert pounds into euros before the end of the year.
Consensus Forecasts Signal Weaker Pound
The survey, which aggregates forecasts from nearly 70 major banks, shows a clear expectation that the pound will weaken against the euro through the end of the year and remain below current levels into 2027. The median forecast is considered a useful reference point for businesses and individuals with future currency exposures, offering a benchmark for budgeting and planning. However, the range of forecasts is wide, with the most optimistic projections placing GBP/EUR near its current spot rate of 1.17, while the most pessimistic scenario sees the pair falling to 1.0753-a level last seen during periods of heightened market stress in the past decade.
For context, the pound has often defied consensus expectations in recent quarters, sometimes outperforming institutional models. For example, the mean forecast for the third quarter of the year, as of March, was 1.1460, but the actual rate traded higher, closer to the upper end of the forecast range. This history of surprises highlights the difficulty of predicting currency movements, especially when political and economic factors are in flux.
Political and Economic Factors at Play
Several factors are contributing to the cautious outlook for the pound. Political developments in the United Kingdom, including upcoming policy decisions and potential changes in government, are expected to influence market sentiment during the autumn. Economic models used by banks suggest that the pound is overvalued relative to the euro, making it more vulnerable to corrections if investor confidence shifts or if economic data disappoints.
Market-implied forward rates, which reflect how traders are positioned, also suggest limited upside for GBP/EUR from current levels. The consensus among analysts is that the current spot rate already reflects the more optimistic scenarios, leaving greater room for disappointment if conditions deteriorate. For those needing to make euro payments or conversions, this means the risk of a weaker pound should be factored into financial planning.
Key Data and Forecast Range
Based on the latest survey, the median forecast for GBP/EUR by year-end is approximately 300 pips below the current spot rate, which has recently hovered around 1.17. The downside outlier in the forecast pack is 1.0753, while the highest forecast is near 1.1880. These figures are derived from the Bloomberg survey of major banks and are available through World Wide Currencies. The forecast horizon extends into 2027, with most projections keeping the pound below its current level against the euro for the foreseeable future.
For businesses and individuals with exposure to the pound or euro, these forecasts provide a framework for assessing potential risks and opportunities. However, as recent history shows, the pound has a tendency to move against consensus expectations, underscoring the importance of monitoring both economic data and political developments closely.
Understanding how consensus forecasts are constructed can help readers interpret their practical value. Median forecasts aggregate the central tendency of a wide range of institutional views, smoothing out extreme predictions but sometimes missing turning points. The variance between the highest and lowest forecasts reflects the inherent uncertainty in currency markets, where political events, central-bank decisions, and unexpected economic data can quickly shift sentiment. For those managing currency risk, using consensus forecasts as a planning tool-rather than a guarantee-can support more resilient budgeting and payment strategies.
