GBP/EUR exchange rate week review: pound trades in narrow range versus euro despite rising UK inflation
17/02/2025 to 21/02/2025: The pound was largely subdued against the euro amid mixed macroeconomic data from both sides.
Monday
The pound euro (GBP/EUR) exchange rate rose into the €1.20 mid-range after the single currency was undermined by dovish comments from European Central Bank (ECB) policymaker Fabio Panetta.
The Governing Council member said the ECB should not hold back on interest rate cuts as the 2% price target is in sight and inflation risks are to the downside.
Meanwhile, the pound was subdued ahead of influential economic data from the UK economy later in the week.
Tuesday
The pound continued to firm, falling just short of the €1.21 benchmark following the release of encouraging UK jobs data.
The UK unemployment rate was lower than expected in the final quarter of 2024, and pay growth accelerated to an eight-month high. The jobless rate in the three months to December was 4.4%, missing forecasts for it to pick up to 4.5%.
However, comments from Bank of England (BoE) Governor Andrew Bailey kept a lid on the pound’s gains. The central bank chief said the figures did not alter the broader UK economic picture and warned of a ‘weak growth environment’.
Meanwhile, the single currency wavered despite a better-than-forecast improvement in Germany’s latest ZEW economic sentiment index. A strengthening dollar applied downward pressure on the euro due to the currency’s negative trading correlation.
Wednesday
The pound traded without a clear direction despite CPI data showing UK inflation rose to a 10-month high of 3% in January.
The stronger-than-expected CPI reading led investors to trim bets on an interest rate reduction in March to 15%, compared with 24% before the data was released.
The euro softened amid investor jitters caused by the lack of progress in peace talks after Donald Trump blamed Ukraine for the war with Russia, prompting President Volodymyr Zelenskyy to counter.
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Thursday
The pound euro exchange rate remained subdued, trading sideways through the €1.20 range.
The Confederation of British Industry’s (CBI) latest industrial trends orders print had a minimal impact despite beating forecasts, as it maintained a deeply negative reading.
The euro also lacked impetus amid contrasting forces.
German producer price rises displayed weaker-than-expected demand in the Eurozone’s largest economy, dampening inflation expectations. However, the single currency was propped up by its negative correlation with a softening dollar and improving consumer confidence in the bloc.
Friday
The pound euro exchange rate remained trapped in a narrow range following the release of mixed data from the UK economy.
British retail sales increased in January for the first time in five months and by much more than expected, with consumers parting with their hard-earned cash despite a weak economic outlook. The 1.7% month-on-month rise in sales volumes was larger than the 0.3% increase forecast by economists.
Meanwhile, the UK S&P Composite Purchasing Managers' Index (PMI) showed UK firms are cutting staff at the fastest pace in more than four years ahead of a tax increase by Chancellor Rachel Reeves. The preliminary PMI reading for February dropped marginally to 50.5 from 50.6 in January, remaining a fraction above the 50 level that separates growth and contraction.
The pound euro exchange rate ended the week at around €1.208.
Looking ahead
With UK data thin on the ground, investors will closely monitor a raft of releases from the bloc, particularly Germany – notably, Eurozone consumer prices on Monday, German GDPO figures on Tuesday, and Eurozone consumer confidence on Thursday.