GBP/EUR Forecast: Pound Sterling Slips vs Euro Following German Election

February 25, 2025 - Written by David Woodsmith

STORY LINK GBP/EUR Forecast: Pound Sterling Slips vs Euro Following German Election

Pound Sterling saw mild losses against the Euro on Tuesday as markets responded to the outcome of Germany’s federal election.

At the time of writing, the Pound to Euro (GBP/EUR) exchange rate was trading at approximately €1.2065, down slightly from Monday’s opening levels after bouncing back from a session low of €1.2046.

The Euro (EUR) found some support at the start of the week as Germany’s election results signalled a return to political stability.

The centre-right Christian Democratic Union (CDU) and its Bavarian ally, the Christian Social Union (CSU), led by Friedrich Merz, secured around 29% of the vote. This puts them in a strong position to form a coalition, likely with the Social Democratic Party (SPD), which took approximately 16% of the vote.

Investors largely welcomed the potential return of the ‘grand coalition,’ viewing it as a stabilising factor for Germany and the wider Eurozone.

However, the Euro struggled to capitalise fully on these gains following the release of Germany’s latest Ifo business climate index, which revealed a weaker-than-expected rise in business confidence, dampening optimism about the economic outlook of the Eurozone's largest economy.

Meanwhile, the Pound (GBP) lacked direction at the start of the week as an absence of fresh UK economic data left traders speculating on the country’s economic trajectory.

Investors were still digesting last week’s mixed data releases. While retail sales figures for February outperformed expectations and the UK’s services PMI showed a better-than-expected expansion, concerns resurfaced over potential tax hikes or spending cuts after lower-than-expected UK tax revenues.

This uncertainty kept GBP sentiment subdued, preventing the currency from gaining ground against the Euro.

Looking ahead, the Pound Euro exchange rate could see movement on Tuesday following a speech by Bank of England (BoE) Chief Economist Huw Pill.

Pill has previously voiced caution about cutting interest rates too soon. If he maintains a hawkish stance and signals that rate cuts are not imminent, Sterling may strengthen.

Meanwhile, Euro traders will be monitoring remarks from European Central Bank (ECB) policymaker Isabel Schnabel for any hints about the ECB’s monetary policy outlook, which could impact EUR exchange rates.

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TAGS: Pound Euro Forecasts