Sterling’s Bold Ascent: GBP Predictions for 2025.

  • GBP Outlook: Saxo Bank predicts GBP/EUR could hit 1.27 by 2025, citing UK fiscal reforms and Europe’s economic struggles as key drivers.
  • Policy Impact: Growth-focused UK measures, including targeted spending cuts and minimal income tax hikes, support a strong nominal growth outlook and a high Bank of England policy rate.
  • EUR Challenges: Europe faces political and economic turmoil, with France battling budget crises and Germany grappling with underinvestment, pressuring the Euro.
  • Market Reaction: Institutional analysts, including Goldman Sachs, anticipate GBP strength, with Saxo Bank projecting potential outperformance against consensus.
  • USD and Broader FX Moves: Forex markets remain volatile ahead of key speeches and US data releases, with GBP/USD trending higher and AUD/USD slipping after weak Australian GDP data.

GBP:

The Pound Sterling may continue its resilience against the Euro, but one investment bank believes the consensus might be underestimating its potential.

Saxo Bank predicts the GBP/EUR exchange rate could climb to 1.27 by 2025—a level unseen since before Brexit.

“With Europe’s economy struggling, the UK’s fresh fiscal policies are propelling sterling to heights not seen in years,” says John J. Hardy, Chief Macro Strategist at Saxo Bank.

This bold forecast is part of Saxo’s “outrageous” predictions but remains within the realm of possibility. Institutional analysts also express optimism for GBP in 2025. Goldman Sachs anticipates GBP/EUR will surpass 1.20 next year, while Saxo believes it could outperform even these projections.

UK fiscal reforms, including targeted spending cuts and growth-friendly measures, position the UK for robust growth. Hardy notes this supports a strong nominal growth outlook and a comparatively high Bank of England policy rate.

However, challenges remain: business leaders criticize the Labour government’s budget for imposing burdensome taxes and regulations, which could hinder growth and raise unemployment.

EUR:

Europe’s challenges provide a stark contrast to the UK’s outlook. France grapples with political dysfunction and growth-suppressing tax policies, while Germany struggles with underinvestment and a disrupted economic model.

Saxo Bank sees these pressures creating an opening for GBP/EUR to reach 1.27 by 2025, effectively erasing the Brexit discount. Hardy suggests this could enhance domestic investment and boost sterling further, with EUR/GBP potentially falling to 0.7500.

Meanwhile, France faces heightened political turmoil, as Prime Minister Michel Barnier risks losing a no-confidence vote. Such instability could amplify economic uncertainty, dragging the Euro lower.

USD:

The US Dollar remains in flux, with key events shaping market movements. Speeches from BoE Governor Andrew Bailey, ECB President Christine Lagarde, and Fed Chair Jerome Powell are in focus, alongside US ADP Employment Change and ISM Services PMI data.

GBP/USD trends higher, approaching 1.2700, while AUD/USD struggles after Australia’s disappointing GDP figures.

As investors await clarity, volatility continues to define the forex landscape.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.