The British pound fell 0.4% to €1.13 on Tuesday, reaching its lowest point against the euro since April 2023, as the US dollar shows signs of reversing last year's historic decline.1 The shift threatens to unwind the currency advantages that boosted eurozone exporters throughout 2025.
Sterling traded at $1.3086, down 0.5%, after analysts at Mizuho Bank forecast the pound could fall below $1.30 as dollar strength returns.2 The US Dollar Index tumbled 10.8% in the first half of 2025, driving a 14% appreciation in the euro that made European goods more expensive globally.3
The dollar's potential stabilization in early 2026 marks an inflection point for European manufacturers and exporters. Companies that benefited from a weaker dollar throughout 2025 now face renewed currency headwinds as the greenback finds support.
"GBP under pressure," said Simon Phillips, managing director at No1 Currency, pointing to sterling's weakness across multiple currency pairs.1 The pound's decline against the euro reflects broader dollar dynamics rather than UK-specific factors, though UK gilt yields also climbed to their highest levels since 1998.
Currency markets are reassessing positioning after the dollar's unprecedented weakness. The euro's 14% gain against the dollar in 2025 represented one of the largest annual moves in the currency pair's history, creating difficult conditions for eurozone exporters competing on price.
Jordan Rochester, analyst at Mizuho Bank, expects further sterling losses if dollar strength continues.2 European equity markets have rallied to record highs, with the Stoxx 600 reaching 583.4 points, but a sustained dollar recovery could pressure export-dependent sectors.
The currency reversal follows extreme moves in emerging markets during the dollar's 2025 decline. The Turkish lira collapsed 17% last year, illustrating how dollar weakness drove investors toward higher-yielding currencies in riskier markets.3
For eurozone policymakers, a stronger dollar provides mixed signals. It eases imported inflation but erodes the competitive pricing that helped European exporters gain market share when the dollar was falling. The shift arrives as European markets trade near all-time highs, with unclear implications for earnings growth in export-heavy sectors.
Sources:
1 Yahoo Finance, "Pound hits two-year low against euro as Starmer under fire" (November 12, 2025)
2 Jordan Rochester, via Yahoo Finance
3 Simon Phillips, via Yahoo Finance
