BoE Hawkish Stance Drives Sterling Gains

The Bank of England (BoE) is expected to raise interest rates at both its November and February meetings, according to UBS. This hawkish stance, combined with the UK's higher interest rate differential versus the Eurozone, will support sterling.

UBS predicts that EUR/GBP will drift gradually lower towards 0.84 over the coming quarters as a result of these factors. The broker believes that rate expectations for both central banks have become overly hawkish, and that the European Central Bank (ECB) is expected to continue moving in line with the Federal Reserve.

German fiscal easing has been supporting the Eurozone economy, but this may not prevent a decline in EUR/GBP. The UK currently offers around 1.5 percentage points of additional yield relative to the euro, creating a meaningful carry advantage for GBP investors.

UBS's forecasts put EUR/GBP at 0.84 in December 2026, with long sterling positions benefiting from both expected gradual GBP appreciation and favorable carry.