Pound to Euro Exchange Rate Forecast: GBP/EUR Stagnation Around €1.20

January 6, 2025 - Written by Frank Davies

STORY LINK Pound to Euro Exchange Rate Forecast: GBP/EUR Stagnation Around €1.20

The Pound to Euro (GBP/EUR) exchange rate traded in a narrow range on Monday as investors reacted to Germany’s latest inflation data.

The Euro (EUR) gained ground on Monday after Germany’s latest consumer price index (CPI) data exceeded market expectations.

The report revealed that inflation in Germany rose from 2.2% to 2.6% in December, outpacing the forecasted increase to 2.4% and marking the highest inflation rate in nearly a year.

The stronger-than-expected inflation figures tempered market expectations of aggressive monetary easing by the European Central Bank (ECB). While a rate cut at the ECB’s upcoming meeting is still widely anticipated, Monday’s data raised questions about how aggressively it may pursue additional rate cuts in 2025.

Despite this, the Euro’s gains were limited by weaker data from the broader Eurozone. The latest purchasing managers' index (PMI) figures confirmed that the bloc’s private sector continued to contract in December, even though service sector activity was revised slightly higher.

The Pound (GBP) faced headwinds on Monday after the release of disappointing UK services PMI data.

December's finalised index was revised down from 51.4 to 51.1.

The report also revealed a notable drop in employment within the sector, with nearly one in four firms reducing payrolls. This marked the sharpest decline in service sector employment since early 2021.

December’s subdued PMI reading has sparked fresh concerns about the UK’s economic outlook, raising questions about whether the Bank of England (BoE) may need to adopt a more aggressive approach to interest rate cuts in the coming months.

GBP/EUR Forecast: Stronger Eurozone Inflation to Bolster the Euro?

Looking ahead, the Pound to Euro exchange rate could face additional pressure on Tuesday with the release of Eurozone inflation data for December.

Should the higher-than-expected inflation observed in Germany be mirrored across the bloc, it may further dampen expectations for aggressive rate cuts from the European Central Bank (ECB) and bolster the Euro.

Meanwhile, with no significant UK economic releases scheduled, the Pound may struggle to find a clear direction, leaving it vulnerable to external factors.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Currency Predictions Pound Euro Forecasts