ExchangeRates.org.uk - At time of writing the GBP/EUR exchange rate was trading at around €1.1943.Down roughly 0.7% from last week’s opening levels.
The Pound (GBP) opened last week on the back foot, undermined by a downwardly revised UK services PMI in December.
However, Sterling’s initial losses were extremely modest when compared with the slump which followed.
GBP exchange rates plummeted through the middle of the week, and a significant selloff in UK bonds led to a sharp rise in government borrowing costs, rattling both investors and policymakers.
The spike in yields underscored fears about the sustainability of the country’s public finances, further denting confidence in the pound.
This bond market turbulence stoked speculation that Chancellor Rachel Reeves may be forced to take additional austerity measures to prevent breaching the government’s self-imposed fiscal rules.
Speculation of further tax hikes and spending cuts has stoked worries about their potential to dampen economic growth, adding to the challenges facing the UK economy.
While the situation began to calm in the second half of the week, Sterling still ended the session significantly weaker.
Euro (EUR) Fluctuates amid Uneven Data
The Euro (EUR) initially firmed last week, with the single currency receiving a boost following a stronger-than-expect inflation print from Germany.
The single currency then struggled to consolidate these gains, with EUR exchange rates almost immediately coming under pressure as the inflation figures for the Eurozone, as a whole, didn’t mirror the strength seen in the German figures.
A sharp rise in the US Dollar (USD) through the middle of the week and abysmal factory order figures from Germany then applied additional pressure to the Euro.
Despite these headwinds the euro was still able to end the session up sharply against the Pound.
GBP/EUR Forecast: Robust UK Inflation to Lift Sterling?
This week, the Pound Euro exchange rate is likely to remain highly sensitive to developments in the UK bond market.
If government borrowing continues to rise, the Sterling may test new lows.
Also of note the GBP investors will be the UK’s latest consumer price index.
If inflation remains strong, it may trim Bank of England (BoE) interest rate cut bets and help revive the Pound.
Meanwhile, if Germany’s latest GDP figures report that the Eurozone's largest economy contracted again in 2024 the Euro is likely to weaken.
This content was originally published on ExchangeRates.org.uk