GBP/EUR exchange rate week review: pound sinks to 10-week low against euro
06/01/2025 to 10/01/2025: The pound euro (GBP/EUR) exchange rate fell to a multi-week low amid rising government borrowing costs following the UK bond market selloff.
Monday
The pound euro (GBP/EUR) exchange rate dropped to around €1.202 after the UK’s latest services PMI report showed December’s finalised index was revised lower, before recovering to the mid-range. Weak demand and higher payroll led to the steepest decline in service sector jobs since January 2021.
Meanwhile, rising German inflation supported the single currency. The higher-than-expected CPI reading from the Eurozone’s largest economy discouraged European Central Bank (ECB) rate cut speculation.
Tuesday
An absence of influential data from the UK economy left the pound trading without a clear direction through the €1.20 mid-range.
The UK currency stayed afloat versus the euro thanks to the Eurozone consumer price index for December, which showed inflation sped up in the bloc, as expected.
Wednesday
The pound sunk below €1.20 against the euro following a surge in government borrowing costs to their highest level since 2008. Economists warned that Chancellor Rachel Reeves could be forced to raise taxes or cut spending, potentially damaging the UK economy.
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Thursday
The pound euro rate remained under pressure, falling to a 10-week low a fraction above the €1.19 benchmark as concerns over the UK government's rising borrowing costs continued to undermine the pair.
Despite worries of higher debt souring pound sentiment, the UK currency was spared further losses, as calm returned to the gilt market following the UK bond selloff that triggered the surge in borrowing costs.
The euro was broadly subdued amid mixed data from the bloc. While German trade and industrial data was stronger than forecast, Eurozone retail sales disappointed in November.
Friday
With economic data in short supply, the pound drifted lower against the euro, ending the week around €1.191, as UK bond headwinds persisted.
Looking ahead
The UK inflation print for December hit the headlines on Wednesday amid concern that price pressures are increasing again after November's figure rose to 2.6%, up from 2.3% in October. If the CPI shows inflation has heated up further, investors are likely to raise bets on another Bank of England (BoE) rate hold at its next meeting in February – conditions that are likely to support the pound.