Pound to Euro Fails to Hold 1-Week Best Exchange Rate for Buyers

February 10, 2025 - Written by David Woodsmith

STORY LINK Pound to Euro Fails to Hold 1-Week Best Exchange Rate for Buyers

US trade policies and the German political outlook together with UK economy and wider geo-political developments will all have an important impact on European currencies during the week.

Traders will be on edge throughout the week as relative confidence drives the Pound.

The Pound to Euro (GBP/EUR) exchange rate traded at 1.2015 from an initial 4-week highs at 1.2050.

Despite near-term risks, Danske Bank forecasts that GBP/EUR will reach 1.2200 on a 6-month view.

Over the weekend, President Trump announced that he would impose 25% tariffs on all Aluminium and steel imports.

There was also increased speculation that the Administration would impose reciprocal tariffs on trading partners, maintain unease over the global trade policies.

The US will impose retaliatory tariffs on imports from countries which have tariffs on US products.

The car sector will be a key focus amid reports that the EU will offer to lower tariffs on US imports to avoid the imposition of wider tariffs.

European energy prices will also be watched closely this week.

Cold weather in Europe, coupled with lower than normal storage levels, has put upward pressure on prices with UK prices at the highest level since 2023.

Danske Bank commented, “The gas market in Europe is growing increasingly tight, and the risk of a renewed energy crunch this year is on the rise.”

A further jump in prices would hurt the Pound and Euro.

Geo-political developments will be watched closely during the week with a focus on potential talks over the Russia-Ukraine war.

ING commented; “we are expecting to hear more about the US proposed ceasefire deal in the Russia-Ukraine conflict. A surprise deal would certainly be a positive for the European currency complex.”

Domestically, the UK will release the latest GDP data on Thursday with expectations of marginal growth for December.

There are also expectations of a small contraction for the fourth quarter of 2024.

A negative figure and a downward third-quarter revision would indicate a technical recession and trigger fresh speculation over a more dovish Bank of England stance.

ING commented, “A soft fourth quarter UK GDP figure out on Thursday could also add to a dovish narrative.”

The Euro-Zone Sentix investor confidence index improved sharply to -12.7 for February from -17.7 previously and compared with consensus forecasts of -16.4.

There was a net improvement in the German outlook, and Sentix commented, “Hopes are based on a political turnaround after the federal elections on 23rd February 2025.”

Opinion polls for the German election indicate that the CDU/CSU is well ahead of other parties at 30%, with the far-right AfD party in second place around 20%.

Coalition building will be difficult with a focus on economic reform plans.

MUFG commented, “Market participants will be watching the election outcome closely to assess the likelihood of the next government putting in place policies to try to kick start growth in Germany, including loosening regulations, lowering corporate and income taxes, and reforming the debt brake to allow more government investment in the coming years.”

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TAGS: Pound Euro Forecasts