Pound Sterling Holds Weekly Trump Tariff Gains Against Euro and Dollar

February 14, 2025 - Written by Tim Boyer

STORY LINK Pound Sterling Holds Weekly Trump Tariff Gains Against Euro and Dollar

The British Pound spiked higher against the Euro (GBP/EUR) and US Dollar (GBP/USD) exchange rates on the headline UK GDP data but failed to hold the gains as the details within the data were notably less favourable and reinforced reservations over the underlying outlook.

ING commented, “Fourth-quarter UK GDP wasn't as bad as it could have been, though the details weren't great.”

The Pound to Dollar (GBP/USD) exchange rate spiked to near 1.2520 before a retreat to 1.2485.

Choppy trading is likely to continue. According to UoB; “GBP is likely to trade in a 1.2310/1.2550 range.”

The Pound to Euro (GBP/EUR) exchange rate failed to break 1.2000 and retreated to 1.1985 with markets continuing to monitor the Ukraine situation.

Any easing of gas supply concerns would help support the Euro.

ING commented, “We're negative on sterling into the second quarter and suspect that EUR/GBP will find support this month in the 0.8300/8350 area.” (GBP/EUR selling on any rallies to 1.2050.)

According to the ONS, UK GDP grew 0.4% in December after a 0.1% increase for November and compared with consensus forecasts of 0.1% growth.

There was 0.4% growth in the services sector and a 0.5% rebound in industrial production, but the construction sector declined 0.2%.

The economy grew 0.1% in the fourth quarter of 2024 after no change in the third quarter but, importantly, markets had expected a 0.1% contraction for the three months.

According to ONS director of economic statistics Liz McKeown, “The economy picked up in December after several weak months, meaning, overall, the economy grew a little in the fourth quarter of last year.

The services sector grew 0.2% with 0.5% growth for construction, but industrial production declined 0.8%.

The GDP data was boosted by a surge in inventories, while GDP per capita declined marginally during the year.

Although the economy avoided recession, the production sector was in recession and has contracted for five successive quarters amid a further slide in car output.

Investment also declined 3.2% for the fourth quarter while government spending increased.

Capital Economics chief UK economist Paul Dales commented, "In short, October’s Budget decisions contributed to rising public sector activity, but contributed to falling private sector activity."

Looking ahead, he added, "with business sentiment on the floor and employment declining, it’s hard to see private sector activity improving much over the first half of 2025.”

Rob Morgan, chief investment analyst at Charles Stanley, was cautiously optimistic; “Overall, it appears likely there will be a continued small improvement, at least in the short term. Consumers and businesses will continue to benefit from falling interest rates with three cuts made in the past six months or so. The boost to government spending should also provide a temporary uplift.”

ING also voiced further concerns over fiscal policy; “The combination of weaker growth and higher market rates has likely eroded the already-limited fiscal 'headroom' granted to Chancellor Rachel Reeves.”

The bank expects tweaks to future spending projections will be used to notionally meet fiscal rules which could support market confidence.

It did, however, add; “January's gilt sell-off demonstrated that investors are more sensitive to the UK's fiscal story right now. And the risk is that they focus more on the current reality of circa 4% deficits and substantial gilt issuance plans over the government's fiscal rules.”

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts