Sterling is poised to extend its recent gains against the euro, with UBS forecasting the British currency could strengthen to 0.85 per euro by September 2027 as the yield advantage widens and speculative short positions unwind.
The Swiss bank’s latest EUR/GBP forecast, published in a Friday note, projects the pair drifting toward 0.84 before stabilizing around 0.85, up from its previous guidance. A stronger-than-expected European recovery could push the cross above 0.86, UBS added.
Sterling has already strengthened materially in June and July, supported by firmer UK economic data, the gradual dissipation of oil price effects, and expectations that fiscal policy would avoid market disruptions. The pound’s yield advantage over the euro now stands at roughly 1.5 percentage points, the highest in Europe alongside the Norwegian krone, which UBS noted is far less liquid.
UBS does not anticipate a bearish move for the euro but argues that much of the region’s positive news—including fiscal-driven growth and the European Central Bank’s final rate hike expected in September—is already reflected in current valuations. The bank also highlighted elevated short positions in sterling as a potential catalyst for further short-covering rallies.
Political risk remains the primary downside threat, with sentiment in currency markets vulnerable to rapid shifts if Prime Minister Andy Burnham’s initial policy signals are perceived as fiscally imprudent. Sterling has held steady since mid-July following its earlier appreciation.
