Pound to Euro Exchange Rate Steady as UK Inflation Softens

January 15, 2025 - Written by Frank Davies

STORY LINK Pound to Euro Exchange Rate Steady as UK Inflation Softens

The Pound Sterling remained steady against the Euro and US Dollar on Wednesday, as markets responded to the latest UK inflation data.

At the time of writing, Pound to Euro (GBP/EUR) exchange rate was trading around €1.1885, showing little movement from Wednesday’s opening levels.

The Pound (GBP) held its ground on Wednesday after the release of the UK’s December consumer price index (CPI).

According to the Office for National Statistics (ONS), UK inflation unexpectedly slowed from 2.6% to 2.5%, defying predictions it would remain at an eight-month high.

The slowdown in inflation provided some relief to markets, easing concerns over persistent cost pressures on businesses and households.

Lower inflation has also temporarily alleviated fears about rising UK borrowing costs, which have rattled GBP investors in recent days.

However, the moderation in inflation prompted investors to reassess their outlook for monetary policy, with speculation growing that the Bank of England (BoE) may opt for an interest rate cut as early as February.

This dovish shift in BoE expectations limited the Pound’s ability to capitalise on the inflation report.

The Euro (EUR) was similarly subdued on Wednesday following disappointing GDP data from Germany.

Figures for 2024 confirmed that the German economy contracted by 0.2%, marking its second consecutive year of negative growth.

This decline was attributed to ongoing struggles in the manufacturing sector and weaker export activity, raising fresh concerns about the health of the Eurozone’s largest economy.

These worries weighed on the single currency, leaving the Euro unable to gain significant ground.

Looking ahead, the GBP/EUR exchange rate could gain traction later in the week with the release of the UK’s November GDP report.

The monthly GDP figures are expected to show the economy grew by 0.2%, marking its first expansion since August.

Such a rebound could help ease concerns about the UK’s economic trajectory and support the Pound, particularly if it helps calm turbulence in the bond market.

Meanwhile, the Eurozone’s finalised December CPI figures are due on Friday.

Inflation is forecast to have risen to 2.4%, but as this outcome is unlikely to alter expectations for an upcoming rate cut from the European Central Bank (ECB), the Euro may struggle to find significant support.

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TAGS: Pound Euro Forecasts