UBS said in a report released Thursday that the euro-to-pound exchange rate is expected to remain confined within its recent trading range after the budget-related risk premium was priced out of the British currency.
The bank's analysts noted that recent, more upbeat economic data from the United Kingdom has bolstered the pound, helping to underpin its steadiness versus the euro. At the same time, UBS pointed to the European Central Bank's decision to keep policy settings unchanged and described Eurozone economic releases as "uneventful," meaning euro developments have exerted little influence on the EUR/GBP cross.
On the outlook for spot levels, UBS forecasts the EUR/GBP exchange rate will trade in a 0.86-0.89 band and sees the pair gradually drifting toward the upper end of that range by the end of 2026. The report also highlighted that the current yield differential favors the British pound, but that UBS still expects broadly similar total returns for both currencies despite the anticipated modest exchange-rate shift.
The analysis emphasizes three behavioral drivers: the removal of the budget-related risk premium from sterling, the stabilizing effect of improved UK data, and a lack of catalytic eurozone developments under a steady ECB policy stance. Together, these elements are presented by UBS as the principal reasons EUR/GBP should remain range-bound in the period ahead.
Market participants and corporate treasuries monitoring cross-currency exposure may interpret UBS's view as a signal that major movements in EUR/GBP are unlikely unless one of the underlying dynamics changes. The bank's projection of similar total returns for both currencies reflects its assessment that yield advantages for sterling do not necessarily translate into outsized currency gains over the forecast horizon.
UBS's forecast and accompanying rationale were laid out in the Thursday report, which frames the outlook in terms of present data signals and current policy settings rather than any new developments slated in the near term.