Title: UBS Forecasts GBP/EUR Exchange Rate to Reach 1.1365 by End of 2025
Author: Adam Solomon (Original article credit: ExchangeRates.org.uk, September 6, 2025)
As the global economy continues to navigate post-pandemic adjustments, central bank policies, and geopolitical fluctuations, major financial institutions keep a close eye on foreign exchange dynamics. According to a detailed analysis by UBS, one of the world’s largest and most influential wealth managers, the British pound (GBP) is expected to appreciate modestly against the euro (EUR) by the end of 2025.
UBS projects that the GBP/EUR exchange rate could climb to 1.1365 by the close of the year, largely due to interest rate differentials between the Bank of England (BoE) and the European Central Bank (ECB), differences in economic performance, and evolving investor sentiment.
Key Highlights from UBS’s Forecast
According to UBS analysts, the outlook for the GBP/EUR pair over the coming months and into 2025 is shaped by several important factors:
• Central Bank Policy Divergence: The BoE is expected to maintain a tighter monetary policy stance compared to the ECB, especially during the early quarters of 2025. UBS notes that higher UK interest rates could help support the pound.
• UK Economic Resilience: Despite slowing global growth and inflationary pressure, UBS expects the UK economy to demonstrate greater stability relative to the Eurozone. This resilience is a supportive factor for sterling.
• Sluggish Growth in the Eurozone: The euro area continues to face sluggish growth due to persistent structural challenges and weak domestic demand. GDP growth in major economies like Germany and France has underperformed, keeping the EUR under pressure.
• Real Interest Rate Advantage for GBP: UBS draws attention to real interest rate differentials, which adjust for inflation expectations. UBS’s research shows that UK real yields are outperforming euro area yields, driving capital flows favoring sterling.
• Investor Sentiment and Positioning: UBS believes an underweight positioning of GBP among investors could lead to a realignment as economic data strengthen, creating more demand for the pound.
GBP/EUR Trajectory: What Lies Ahead
UBS analysts provide a quarterly outlook for the GBP/EUR currency pair, using macroeconomic indicators, monetary policy expectations, and technical analysis as key tools for projection.
Forecast for the GBP/EUR Exchange Rate (As Predicted by UBS in September 2025):
• Q3 2025 Target: 1.1260
• Q4 2025 Target: 1.1365
• Long-Term Trend: Moderate appreciation of GBP relative to EUR
This anticipated appreciation is relatively modest, but strategically important for traders, businesses, and investors managing cross-border exposure.
Key Factors Driving UBS’s Forecast
1. Bank of England’s Policy Path
UBS believes that the Bank of England is committed to maintaining a higher interest rate environment for longer due to ongoing inflationary risks in the services sector, sticky wage growth, and housing market pressures.
• UBS expects no aggressive rate cuts from the BoE until mid-2026.
• With interest rates likely to hibernate at 4.5% throughout most of 2025, the pound could retain a relative yield edge over the euro.
While markets have debated the possibility of multiple small rate cuts in the UK, UBS contends that persistent core inflation makes such an accommodative stance unlikely in the near term.
2. European Central Bank’s Dovish Tilt
In contrast to the BoE, the European Central Bank has shown more openness to easing measures. The ECB has been responding to weaker economic indicators by reducing interest rates and increasing liquidity options to promote lending.
• Eurozone inflation has dropped below 2.5%, giving the ECB room to act.
• UBS anticipates continued dovishness, with at least two additional rate cuts by mid-2026.
• ECB’s quantitative easing is likely to expand subtly through
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