While the British Pound may be the worst-performing major currency of 2025, signs of a potential recovery are starting to appear.

Recent declines have pushed the Pound significantly below the levels predicted by models at leading global investment banks.

The current median forecast for Q1 indicates a potential recovery for Sterling, with the target for the Pound to Euro exchange rate set well above 1.20.

The Pound has struggled through January, making it the worst-performing G10 currency of the year, Pound Sterling Live reports.

The weakness of Sterling follows a series of unexpectedly weak economic data, suggesting that the government will struggle to meet its revenue targets.

This raised concerns in bond markets, driving up borrowing costs for the UK government and contributing to the Pound's decline.

However, this week, the Pound has stabilised against most of its counterparts, including the single currency.

A recovery in the GBPEUR exchange rate would likely need the UK to report stronger-than-expected economic data and for Donald Trump to impose import tariffs on the EU.

Citibank strategists believe that the Pound's decline against the Euro is approaching its limit, with a potential turnaround on the horizon.

In a recent note, Citi's Global FX Strategy desk recommended “Short EURGBP.” Strategists stated that the selloff in the GBP would likely come to an end once one of three conditions was met: global fixed income yields peak; a UK policy announcement that calms markets or a shift in sentiment regarding fiscal concerns; or a movement toward 0.8470-0.85, where the risk/reward ratio becomes more favourable for short positions.

“Condition three has effectively been met,” said Citi, sparking the recommendation to sell EURGBP in anticipation of a recovery in Sterling.

In addition, last week's inflation data from the UK and US, which came in below expectations, seems to have paused the increase in fixed-income yields, at least for the time being.

“We think risk/reward is attractive to try a tactical EURGBP short here against the 55wma with potential for a move back towards the multi-year lows around 0.8250,” Citi added.

EURGBP at 0.8250 suggests a GBPEUR target of 1.2121, indicating that a recovery back to the top of recent ranges is within reach.