EUR/GBP forecast sees range-bound trade as UK risk premium fades

The EUR/GBP forecast suggests the currency pair is likely to remain confined within a defined trading range as market concerns surrounding the UK’s fiscal outlook gradually ease, according to a new analysis published by UBS.

Strategists at the Swiss bank noted that the fading of the budget-related risk premium has helped stabilize the British pound, while recent UK economic data has been relatively resilient, offering additional support to sterling against the euro.

UK data supports pound as fiscal concerns diminish

Improving economic indicators from the United Kingdom have reinforced confidence in the pound’s outlook, reducing volatility in the EUR/GBP exchange rate. UBS analysts highlighted that stronger domestic data has offset previous concerns about fiscal risks, helping the currency maintain stability despite broader market uncertainty.

As a result, the risk premium that previously weighed on sterling appears to have been largely priced into markets, limiting significant downside pressure.

ECB policy stability keeps euro impact limited

On the euro side, the European Central Bank’s steady policy stance has contributed to muted movements in the single currency. UBS noted that recent Eurozone economic releases have been largely neutral, providing little momentum to drive major shifts in the EUR/GBP pair.

The bank expects EUR/GBP to continue trading within a range between 0.86 and 0.89, with a gradual bias toward the upper end of this band by the end of 2026.

Yield differential may balance total returns

Despite expectations for a gradual move higher in the exchange rate, UBS believes that the yield advantage currently favoring the British pound could lead to broadly similar total returns for investors holding either currency over the forecast horizon.

Overall, the EUR/GBP forecast reflects a period of relative stability, with both currencies supported by steady policy outlooks and improving investor sentiment.