Pound to Euro: 10-Week Low, Where Next?

January 10, 2025 - Written by Frank Davies

STORY LINK Pound to Euro: 10-Week Low, Where Next?

The Pound vs Euro exchange rate (GBP/EUR) slipped on Thursday as concerns over the UK’s rising borrowing costs undermined the currency pairing.

On Thursday, the Pound (GBP) faced another downturn, losing ground against most of its major trading partners as persistent worries about escalating UK borrowing costs continued to weigh on the currency's sentiment.

Early in the day, the yield on the 10-year UK government bond climbed to its highest point since 2008, fueling concerns about the nation's financial stability.

Michael Brown, Senior Research Strategist at brokerage Pepperstone, noted:

‘This dynamic, of yields moving higher, as the respective currency falls, is a classic sign of fiscal de-anchoring taking place, and of participants losing confidence in the Government in question’s ability to exert control over the fiscal backdrop. We’re not at the Truss/Kwarteng stage just yet, but things are clearly on very shaky ground indeed.’

As a result, Sterling struggled to catch bids on Thursday and faced headwinds against nearly all of its major counterparts.

On Thursday, the Euro (EUR) maintained its stability against most of its peers despite a mix of economic data releases.

Initially, Germany's latest balance of trade figures surpassed expectations, with the export-driven nation exceeding its November export forecasts.

However, this positive momentum was tempered by the Eurozone's retail sales data for the same period, which came in slightly below market expectations.

Despite the mixed economic indicators, the single currency managed to hold its ground against nearly all of its major rivals, further supported by a risk-averse market sentiment.

Looking ahead to Friday, the primary factor influencing the Pound Euro exchange rate will likely be the ongoing concerns over the UK’s rising borrowing costs, given the absence of any significant data releases from the UK or the Eurozone.

The recent spike in the yield on the 10-year UK government bond has intensified these concerns, casting doubt on the country's fiscal stability and the government's capacity to effectively manage its economic challenges.

Any additional negative news or statements could further undermine confidence in the British currency as the week draws to a close.

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TAGS: Pound Euro Forecasts