## MUFG Prediction: The Pound Sterling Against the Euro Will Face Downward Pressure Toward 2026-2027

The pound-euro exchange rate could experience a significant correction in the coming years. According to MUFG analyses, after the GBP/EUR pair recently reached three-month highs above 1.1560, there is a high probability that the exchange rate will retreat to around 1.11 by the end of 2026. This projection is based on macroeconomic dynamics that will affect both currencies differently.

### Current Market Dynamics

The pound exchange rate shows volatility around 1.1510 after its recent upward push. However, MUFG experts warn that this upward movement lacks long-term sustainability. The progressive erosion of yield differentials is a key factor in this bearish outlook for the British currency.

### Bank of England Monetary Policy: Key Factor

Market expectations foresee fewer than two interest rate cuts during 2026. Nonetheless, MUFG maintains a more aggressive stance in its forecast, estimating that the Bank of England will implement at least two rate cuts before August. This divergence in perspectives reflects different interpretations of the UK’s monetary policy trajectory.

The UK policymakers are likely to support these rate cuts according to MUFG projections. The UK’s wage outlook plays a crucial role in this assessment: a slowdown in wage growth is anticipated, which would facilitate moderation in service sector inflation. This combination would allow the BoE to maintain a more flexible stance regarding its interest rate policy.

### Overall Outlook for the Pound Sterling

In summary, MUFG’s projection suggests a bearish trajectory for the pound-euro exchange rate, settling around 1.11 by the end of 2026 and 2027. The decisions of the Bank of England, along with the evolution of the UK labor market, will be decisive in validating or adjusting these forecasts in the coming quarters.