NatWest (National Westminster Bank - a large UK commercial bank) forecasts that the pound will rise to 1.22 against the euro by the end of 2025.
The pound to euro (GBP/EUR) exchange rate has regained the 1.20 level and NatWest expects it to strengthen to 1.22 by the end of 2025 on the back of yields, which, however, is at risk of decreasing.
The Pound has benefited from high interest rates during 2024, especially with the ECB cutting interest rates three times this year.
GBP/EUR Short-term forecast GBP/EUR Long-term forecast
NatWest expects that interest rate trends will continue to be the key element supporting the Pound during 2025. It assumes that the Bank of England will maintains a cautious stance towards cutting interest rates while the ECB will be more aggressive in cutting rates with the deposit rate cut to at least 2%.
The bank does expect interest rate cuts will help underpin the Euro-Zone growth outlook and GDP growth could beat the UK which will curb Euro losses.
NatWest also notes that there are significant risks to the pound as the UK has a persistent current account deficit, which represents an important underlying vulnerability.
The Pound threat will be more acute if there is a much more risk-averse trend in global markets.
