Libra to Euro: MUFG Analysis for 2026-2027 Anticipates Drop to 1.11 due to BoE Cuts

What to Expect in the GBP/EUR Cross?

The British pound against the euro (GBP/EUR) has experienced notable volatility in recent sessions. After reaching three-month highs above 1.1560, the exchange rate has retreated again toward 1.1510, reflecting market uncertainty regarding the future of both currencies. However, MUFG analysts suggest that these upward movements may not be sustainable in the medium term.

Forecasts for the End of 2026: The Pound Faces Downward Pressure

According to MUFG’s projection, the GBP/EUR cross could fall to the 1.11 level by the end of 2026 and early 2027. This depreciation of the British pound is mainly attributed to the erosion of its yield advantages, which have been one of the main supports for the British currency. With narrower interest rate differentials compared to the euro, demand for the pound tends to decrease.

Bank of England Monetary Policy: Key Factor

The Bank of England (BoE) will play a decisive role in this trajectory. Although the current market consensus speculates with fewer than two rate cuts by 2026, MUFG maintains a more aggressive stance, expecting the BoE to implement at least two rate cuts before August. This divergence in expectations could amplify downward pressure on the pound against the euro.

BoE policymakers might feel supported to execute these cuts if, as MUFG projects, a slowdown in wage growth materializes. A more moderate wage growth would mean less inflationary pressure in the services sector, providing greater room to ease monetary policy without compromising price stability.

Market Implications

The convergence of lower British interest rates, weakening yield advantages, and a slowdown in wage growth create a challenging scenario for the British pound. These fundamental factors support MUFG’s bearish thesis for the GBP/EUR pair over the next 18 months, reinforcing the euro’s trend as a relatively more attractive currency in the described scenario.