GBP/EUR exchange rate midweek update: pound plunges versus euro as government borrowing costs surge
06/01/2025 to 08/01/2025: The pound euro (GBP/EUR) exchange rate was dealt a chastening blow by government borrowing costs, which surged even higher.
Monday
The pound euro (GBP/EUR) exchange rate dipped lower following contrasting economic data from both sides. The pair dropped to around €1.202 before trimming its losses and settling in the mid-range.
The UK’s latest services PMI report showed December’s finalised index was revised lower, aggravating concerns over the UK’s gloomy economic outlook. Overall, S&P Global’s services index PMI came in at 51.1, revised down from 51.4 amid weak demand and higher payroll costs – conditions that have led to the steepest decline in service sector jobs since January 2021.
The euro was buoyed by the German consumer price index, which showed inflation rose more than expected in December. The annual consumer price inflation rate increased to 2.8%, higher than the 2.6% forecast by economists and accelerating from 2.4% in November.
Hotter-than-expected inflation in the Eurozone’s largest economy dampened speculation of European Central Bank (ECB) interest rate cuts.
Tuesday
The pound traded sideways through the €1.20 mid-range versus the euro as a lack of data from the UK economy left it listless.
It managed to hold steady against a subdued euro following the release of the latest Eurozone consumer price index, which showed inflation accelerating from 2.2% to 2.4% in December, as forecast.
Wednesday
The pound euro exchange rate plunged to €1.197 – its lowest level since November – amid an empty UK data docket and a surge in government borrowing costs.
A benchmark measure of the cost of government borrowing climbed to its highest level since the global financial crisis in 2008. Economists believe this could force Chancellor Rachel Reeves to raise taxes or cut spending as the cost of government borrowing swells, potentially damaging the economy.
Looking ahead
The UK data lull continues, with the BRC Shop Price Index on Thursday the only release in the calendar.
German Industrial Production figures and Eurozone Retail Sales data also hit the headlines on Thursday. If sales in the bloc for November improve as expected, the euro could strengthen.