GBP/EUR exchange rate week review: pound touches 2025 high versus euro

Monday

The pound euro (GBP/EUR) exchange rate dropped into the €1.20 mid-range after the single currency was buoyed by the result of Germany’s federal election, which signalled a return to political stability.

The centre-right Christian Democratic Union (CDU) and its ally, the Christian Social Union (CSU), secured around 29% of the vote, bringing a coalition to the table. Investors largely welcomed a potential ‘grand coalition’ that could bolster the country’s economic prospects.

However, the euro’s gains were capped by Germany’s latest Ifo business climate index, which was unchanged at 85.2 points in February, indicating that sentiment among German companies remains sceptical.

The pound was subdued, as an absence of fresh UK economic data left traders speculating about the nation’s economic prospects following last week’s mixed figures.

Tuesday

The pound traded sideways through the €1.20 mid-range in the absence of notable economic data.

The only release in the UK docket was the Confederation of British Industry’s (CBI) latest distributive trades survey, which exceeded expectations by showing a slight improvement but remained in negative territory.

The euro was muted, amid hawkish central bank comments that buoyed the currency and underwhelming German data that undermined it.

European Central Bank (ECB) policymaker Isabel Schnabel appeared cautious about the prospect of further interest rate cuts.

GDP figures from Germany showed the largest economy in the Eurozone shrank by 0.2% in the final three months of 2024 compared with the third quarter.

Wednesday

The pound euro exchange rate climbed to within touching distance of the €1.21 benchmark amid deteriorating German consumer confidence. Sentiment for March dropped to an 11-month low, denting the single currency.

In the absence of data from the UK economy, the pound’s gains were reinforced by optimism that the UK is less vulnerable to US tariffs than other economies – notably China, the EU and Canada.

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Thursday

The pound broke through the €1.21 benchmark amid ongoing trade tariff optimism after Donald Trump said there’s a “very good chance at arriving at a very good deal” – hitting its highest level this year.

Meanwhile, the euro was undermined by the US president, who threatened the EU with tariffs of up to 25%, which could damage the Eurozone economy.

There was some good news for the single currency after data showed consumer confidence and economic sentiment in the bloc grew slightly in February.

Friday

The pound euro exchange rate plateaued, despite hawkish comments by Bank of England (BoE) Deputy Governor Dave Ramsden. The central bank policymaker said that upside risks to inflation now require a “gradual and careful’” approach to future rate cuts.

German inflation remained flat at 2.8% in February for the second straight month, missing forecasts for a slight slowdown in price pressures to 2.7%, souring euro sentiment.

The pound euro rate ended the month at around €1.211.

Looking ahead

With Eurozone inflation forecast to cool closer to the central bank's 2% target on Wednesday, the ECB is expected to cut interest rates to 2.5% the following day. With the dovish decision largely priced into markets, the euro’s downside will likely be cushioned.

Influential economic data from the UK economy is thin on the ground, meaning Wednesday’s PMI for the powerhouse services sector will be in sharp focus. If, as expected, the index holds steady above the 50 threshold that separates expansion from contraction, the pound could find a modicum of support.

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