Pound to Euro News: GBP/EUR Rate Rises on Robust UK Jobs and Hot Inflation

February 19, 2025 - Written by David Woodsmith

STORY LINK Pound to Euro News: GBP/EUR Rate Rises on Robust UK Jobs and Hot Inflation

The Pound to Euro exchange rate (GBP/EUR) edged lower on Wednesday after private school fees and food prices sent UK inflation to the highest level in 10 months.

At the time of writing, GBP/EUR was trading at approximately €1.2069. Down roughly 0.11% from Wednesday’s opening levels.

The January’s CPI inflation figures which rose to 3.0% year-on-year, marking a significant uptick from December's 2.5% and surpassing both market and Bank of England (BoE) forecasts by 0.2 percentage points.

"The largest contribution to the increase in the annual rate came from the transport category, which is unsurprising given that a rebound from last month’s quirkily weak airfares numbers was always on the cards," said analyst at Lloyds Bank on Wednesday.

"The upside ‘news’ accounting for a good deal of the overshoot of expectations at the headline level was in food prices."

"Here the BoE February MPR had anticipated prices rising 2.4% y/y and the actual outturn has been reported at 3.1% y/y."

Pound Sterling had made gains against the Euro on Tuesday after investors reacted positively to the UK’s latest employment figures.

The Pound (GBP) firmed on Tuesday morning following the release of the UK’s latest jobs report, which pointed to ongoing strength in the labour market.

Data from the Office for National Statistics (ONS) showed that the UK unemployment rate remained steady at 4.4% in December, defying expectations of a rise to 4.5%.

Additionally, wage growth continued to accelerate, with average earnings excluding bonuses rising from 5.6% to 5.9%, an eight-month high.

The surge in pay growth fuelled speculation that inflationary pressures remain persistent, reinforcing the view that the Bank of England (BoE) may hold off on cutting interest rates in the near future.

The Euro (EUR) saw some support on Tuesday, bolstered by improved economic sentiment in Germany.

The latest ZEW survey revealed that confidence in the Eurozone’s largest economy rose sharply this month, with the index jumping from 10.3 to 26.0, far exceeding expectations of a rise to 15.5.

This surge in optimism was largely driven by improvements in Germany’s construction sector, as well as recent interest rate adjustments by the European Central Bank (ECB).

However, lingering concerns over the broader Eurozone economy and uncertainty regarding future ECB policy limited the Euro’s ability to mount a meaningful recovery.

The Pound to Euro exchange rate was likley to see movement on Wednesday with the release of the UK’s latest inflation data.

Analysts forecasted January’s headline inflation to climb from 2.5% to 2.8%, while core inflation was projected to rise from 3.2% to 3.6%.

A hotter-than-expected inflation reading may now reinforce expectations that the BoE will maintain a cautious approach to monetary easing, potentially providing additional support for Sterling.

Meanwhile, the Euro could take direction from developments in international politics, with ongoing discussions between the US and Russia over the Ukraine conflict having the potential to sway market sentiment.

If diplomatic progress is made, the Euro may find some renewed strength.

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TAGS: Euro Forecasts