Pound to Euro Holds Near 1.2050

January 8, 2025 - Written by David Woodsmith

STORY LINK Pound to Euro Holds Near 1.2050

Stronger-than-expected inflation data from Germany and Spain on Monday triggered Euro buying, but the French and Italian releases were weaker on Tuesday and the Euro-Zone data was in line with consensus forecasts.

Traders were expecting stronger data and the Euro corrected lower, although there was still an important element of short covering after sharp EUR/USD selling late last year.

In this environment, the Pound to Euro (GBP/EUR) exchange rate nudged above the 1.2050 level, but remained in tight ranges.

Interest rate expectations will remain crucial with major data releases later in the month watched closely.

MUFG expects GBP/EUR will advance to 1.22 in the first quarter of 2025 before drifting lower to 1.2050 later in the year.

UK data releases were mixed while overall risk appetite was steady which limited any potential Pound selling.

The headline Euro-Zone inflation rate increased to 2.4% from 2.2% while the core rate held at 2.7%, both in line with consensus forecasts.

As far as the ECB is concerned, Commerzbank commented; “it makes a major rate cut of 50 basis points at the meeting at the end of the month very unlikely. Rather, the ECB is likely to continue to lower rates gradually.”

Inflation developments will continue to be watched closely, especially given uncertainty over energy prices.

Commerzbank added; “In the medium term, however, higher euro area inflation is not necessarily a positive for the euro: if, as our economists expect, growth remains rather sluggish while inflation picks up, discussions of stagflation are likely to intensify. We are not quite there yet, but it is something to keep in mind.”

The British Retail Consortium (BRC) reported that like-for-like sales increased 3.1% in the year to December after a 3.4% decline previously and compared with consensus forecasts of no change.

The figures were distorted by Black Friday sales being counted in December data this year and for the fourth quarter as a whole, sales increased 0.4% from the previous year.

Food sales were strong, but this was offset by a 1.5% decline in non-food sales.

BRC chief executive Helen Dickinson commented; “Overall, the last three months of last year failed to give 2024 the send-off retailers were hoping for in a challenging year marked by weak consumer confidence and difficult economic conditions."

Halifax reported a 0.2% decline in house prices for December after a 1.2% increase the previous month and compared with expectations of a 0.8% increase.

The annual increase slowed to 3.3% from 4.7% previously.

According to Halifax Head of Mortgages Amanda Bryden; “mortgage affordability will remain a challenge for many, especially as the Bank Rate is likely to come down more slowly than previously predicted.”

She added; “However, providing employment conditions don’t deteriorate markedly from a more recent softening, buyer demand should hold up relatively well and, we’re continuing to anticipate modest house price growth this year.”

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TAGS: Pound Euro Forecasts