Sterling Update: GBP/EUR rate reached a 2024 high this week

Here’s the latest currency news from our partner Moneycorp, to help you find out what your money is worth.

GBP

The GBP/EUR rate reached a 2024 high of 1.1735 this week, a four-month high and in line with levels not seen since September 2023. This is less than half a cent below the currency pair’s annual high of 1.1780 in 2023, which could be attractive to euro buyers. 

Sterling dollar has seen little movement so far this year and has remained rangebound around 1.27 levels. This may be shaped, in part, by contrasting data that came out last week.

It has been a quiet week for economic data in the UK, with only this month’s Manufacturing and Services Purchasing Managers Index (PMI) figures released on Wednesday. Data came in higher than expected for both metrics.

Markets expected a slight improvement from the Services data, which was anticipated to come in at 53.2 (above the critical level of 50). However, the data revealed a stronger upturn in private sector output than expected, landing at 53.8. The UK’s Manufacturing PMI is still lagging below the 50 threshold but came in above the anticipated 46.7 at 47.3. 

As a result, the Flash UK PMI Composite Output Index (which combines Manufacturing and Services) reached a seven-month high of 52.5, up from 52.1 in December. 

The improvements in these indicators could positively impact the overall economic outlook, which could strengthen the Pound. There was some indication of this in the aftermath of the PMI release, as GBP saw some strength against the dollar before pulling back following the release of solid PMIs in the US.

Next week, the Federal Reserve and the Bank of England will hold their monetary policy meetings on Wednesday 31st January and Thursday 1st February, respectively. 

EUR

The Interbank rate EUR/USD was almost 1.11 at the turn of the year, representing the highest levels for the currency pair since last July. However, since then, it has seen continued losses and has now fallen as low as 1.08. The lowest level we saw for EUR/USD in 2023 was in September, when it dropped to 1.04. This could show the single currency can fall further if the trend continues.

After a quiet week last week, this week saw more significant releases. On Wednesday, the Manufacturing and Services Purchasing Managers Index data for France and Germany were released. 

Markets expected very gentle improvements in France and Germany’s manufacturing and services sectors. In reality, although both countries’ Manufacturing PMIs increased more than expected, with Germany’s figure landing at 45.4, above the expected 43.7, and France’s at 43.2, ahead of 42.5, both of the Services PMIs were lower than anticipated. Germany’s Service PMI dropped to 47.6 from 49.3 in December (which was also expected this month), while France’s came in at 45.0, below the anticipated 46.1 and the 45.7 measured in December. 

Despite the Manufacturing PMI data improvements, the figures remain below the key 50 threshold, indicating contraction in the industries.

The European Central Bank also made its latest interest rate decision on Thursday, voting to hold rates steady at 4%. This was in line with market expectations, which had anticipated only a 4% probability of a rate cut. In the subsequent press conference, the ECB’s President Christine Lagarde was adamant that it was “premature” to discuss rate cuts and doubled down on the central bank’s commitment to fighting inflation.

Reuters reported afterwards that anonymous policymakers said they were open to a change in rhetoric at the next meeting and a possible rate cut in June if Europe was further along the disinflation process.

According to Bloomberg analysis, the probability of a 0.25% rate cut in March sits at a low of 20.2%, 70.8% in April, and an almost conclusive chance of at least a 0.25% cut in June. These probabilities, taken in the context of much of the commentary we are seeing from banks and analysts, suggest that an ECB interest rate cut in June is priced in. Any cuts earlier than that will be at least a little bit surprising for the market.

The euro sunk to six-week lows following the decision.