Pound Sterling Gains vs Euro After Latest Business Confidence Index

March 24, 2025 - Written by Frank Davies

STORY LINK Pound Sterling Gains vs Euro After Latest Business Confidence Index

At the start of a very busy week for the UK economy and markets, the Pound (GBP) secured a limited net gain against the Euro (EUR) on Monday.

The Pound to Euro (GBP/EUR) exchange rate also secured a limited advance to near 1.1960 as the overall PMI business confidence index hit a 6-month high despite a further slump in manufacturing.

ING expects that a negative reaction to Wednesday’s budget will undermine the Pound and expects GBP/EUR will dip below 1.1835.

The Pound also gained some relief from gains in equities with reports that the US reciprocal tariffs due to be announced on April 2nd will be less severe and more selective than expected.

Comments that the US will only target countries running substantial surpluses with the US, increased hopes that the UK would escape tariffs.

The dollar also lost some traction and MUFG commented; “The report should help to further dampen upside risks for the US dollar from President Trump’s upcoming tariff announcements.”

After a retreat to below 1.2900 on Friday, the Pound to Dollar (GBP/USD) exchange rate rebounded to 1.2965. There is likely to be further tough resistance close to 1.3000.

According to flash data, the UK PMI services-sector index improved to a 7-month high of 53.2 from 51.0 in February and above market expectations of 51.0.

The services data grabbed the headlines, but there was still notable evidence of a brittle economy.

The PMI manufacturing index, however, dipped further to an 18-month low of 44.6 for March from 46.9 previously and below consensus forecasts of 47.2.

Overall business confidence remained close to 2-year lows while employment again declined on the month, although the rate of cutbacks slowed.

There was strong upward pressure on service-sector costs, although the overall rate of increase in prices was little changed from the previous month.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “An upturn in business activity in March brings some good news for the government ahead of the Chancellor’s Spring Statement. However, just as one swallow does not a summer make, one good PMI doesn’t signal a recovery.”

Williamson noted important headwinds in the economy, including weak confidence, higher costs and weak overseas demand.

He added; “Worryingly, these headwinds are likely to grow in force as higher National Insurance contributions come into effect in April, coinciding with the anticipated review of US tariff policy on 2nd April, the latter having the potential to further subdue global economic growth and dampen UK trade.”

Wednesday’s UK budget will be watched very closely with Chancellor Reeves walking a tightrope to sustain confidence in the economy without ruffling the markets.

According to ING; “the gilt market will be on the lookout for any missteps in the very tight room for fiscal manoeuvring, and the bar for a negative reaction either in bonds or a meaningful repricing lower in growth expectations both have the potential of hitting sterling.”

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TAGS: Pound Euro Forecasts