Pound to Euro Today: Two-Month Best Lost, Can Euro Find Sustained Relief?

March 3, 2025 - Written by Frank Davies

STORY LINK Pound to Euro Today: Two-Month Best Lost, Can Euro Find Sustained Relief?

Following the slide late on Friday amid increased fears over the Ukraine situation, the Euro rallied on Monday.

In this environment, the Pound to Euro exchange rate (GBP/EUR) retreated to near 1.2100 from 2-month highs around 1.2135.

Economic developments will be important with the latest ECB policy meeting on Thursday, but geo-political developments are likely to dominate over the next 48 hours with further Euro volatility inevitable.

ING commented; “The euro’s outlook remains tied to developments on US tariffs and on Ukraine peace talks.”

In the very short term, US trade policy will be watched very closely. The US is still threatening to impose 25% tariffs on Mexico and Canada from March 4th with markets also braced for an announcement on European tariffs.

If the US goes ahead with imposing tariffs on Mexico and Canada, the Euro is liable to retreat and the impact will be intense if Trump also announces tariffs on the EU at the same time.

In contrast, another delay on tariffs would lead to a further Euro recovery.

Following the European security talks at Lancaster House on Sunday, markets adopted a slightly more optimistic stance that there could be reconciliation with the US with the possibility of a viable cease-fire agreement on Ukraine.

There will, however, still be major reservations over the outlook given the diplomatic complexities.

Danske Bank commented; “it is ever more clear that Europe urgently needs a plan to ensure undisrupted support for Ukraine.”

There are strong expectations that the ECB will cut interest rates by a further 25 basis points this week with the deposit rate lowered to 2.50%.

Headline Euro-Zone inflation declined slightly to 2.4% for February from 2.5% previously, but slightly above consensus forecasts of 2.3%.

Similarly, the core inflation edged lower to 2.6% from 2.7%, but above expectations of 2.5%.

According to ING the Euro; “we expect this CPI report to endorse a still-dovish tone by the European Central Bank as it delivers a highly anticipated cut this Thursday.”

Nevertheless, it added; “Still, with markets pricing in three cuts by year-end in the eurozone, the euro’s downside risks ahead of Thursday are limited.”

According to Rabobank; “as monetary policy becomes less restrictive, and the economic outlook again becomes more clouded, a growing group of rate setters may call for a pause soon.”

MUFG added; “It poses another potential upside risk for the euro if the ECB delivers a hawkish rate cut by signalling that they may skip another rate cut at the following meeting in April.”

It did, however, add; “those positive factors for the euro could be more than offset by President Trump putting in place more aggressive tariff hikes this week.”

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TAGS: Pound Euro Forecasts