GBP/EUR exchange rate week review: pound drifts higher versus euro as ECB cuts rates
27/01/2025 to 31/01/2025: The pound euro (GBP/EUR) exchange rate firmed by more than half a percent during a week that saw the ECB reduce interest rates further.
Monday
The pound euro (GBP/EUR) exchange rate edged above the €1.19 benchmark amid optimism surrounding the UK government’s plans to stimulate growth through readjustments to planning regulations. This overshadowed a gloomy economic outlook from Morgan Stanley, which revised its 2025 UK growth forecast down from 1.3% to 0.9%.
The euro was buoyed by better-than-expected business sentiment in Germany. The IFO business climate index defied expectations that it would remain at its lowest levels since the onset of the pandemic.
Tuesday
The pair traded without a clear through the bottom of the €1.19 range as a lack of economic data from the UK economy left the pound treading water.
The euro faced some headwinds due to its negative correlation with an upbeat dollar. However, a cautious market mood helped to limit the euro’s downside.
Wednesday
The pound edged higher versus the euro following a speech from UK Chancellor Rachel Reeves detailing how she plans to make the UK the fastest-growing economy in the G7, including approval for a third runway at Heathrow.
The euro was subdued as investors awaited an expected interest rate cut from the European Central Bank (ECB) the following day and the tone of its forward guidance.
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Thursday
The pound traded without a clear direction through the €1.19 mid-range against the euro amid an ongoing absence of UK economic data.
The euro fluctuated, initially weakening after the Eurozone’s fourth-quarter GDP figures showed that the bloc’s economy unexpectedly stagnated.
The single currency sidestepped a widely expected interest rate cut from the ECB. Cautious rhetoric from the central bank indicated a data-dependent stance to future decisions, cushioning the euro, while a faltering dollar also assisted it.
Friday
The pound euro rate ticked marginally higher following the release of weak German inflation, jobs and retail sales data that undermined the single currency. Meanwhile, the pound remained directionless amid an ongoing UK data lull.
The German Consumer Price Index fell to -0.2% month-on-month in January, down from 0.5% in December and falling short of forecasts for 0.1% growth. The annual gauge dropped from 2.6% year-on-year to 2.3%.
Cooling inflation in the bloc’s largest economy paves the way for more ECB rate cuts, which dented the euro.
The pound euro rate ended the week around €1.195.
Looking ahead
Consumer price data for the wider bloc hits the headlines on Monday. This will shed light on the prospect of further policy easing from the ECB in the future.
The Bank of England (BoE) is in the spotlight on Thursday, when it announces its latest interest rate decision. City investors expect the BoE to reduce interest rates from the current level of 4.75% following better-than-expected inflation figures for December and amid concerns over stalling economic growth.