Sterling Update: GBP to Top G10 Currencies as UK Services PMI Exceeds Expectations

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

GBP

On Monday, the latest UK PMIs were released, with Manufacturing coming in below forecasts at 47.3, while Services continued to show expansion and exceed estimates at 51.4. UK jobs data came out on Tuesday. Employment data was in line with market expectations, with unemployment remaining at 4.3%, and the Average Earnings Index for the three months to October came in higher than anticipated at 5.2%. Wednesday’s UK Consumer Price Index showed an uptick in inflation from 2.3% to 2.6%, likely driven by an increase in core goods prices. Bloomberg Economics expects inflation to remain above the Bank of England’s 2% target throughout 2025, supporting Andrew Bailey’s contention that four rate cuts may be necessary during the year.

The Bank of England held rates as expected at 4.75% in its meeting on Thursday. This is the final meeting of the year, and UK interest rates are in a very different position to what was forecast at the end of 2023. Although markets had priced in six interest rate cuts in 2024, we have seen only two materialise, one in August and one in November. This gradual approach to cutting rates has seen the GBP reportedly become the top-performing G10 currency of the year. Friday’s UK retail sales came in below the expected increase of 0.5%, only reaching 0.2% during one of the peak shopping months, although significantly higher compared to last month’s figure of -0.7%.

EUR

The European Central Bank’s President Christine Lagarde spoke on the ECB rate’s path on Monday morning, following the central bank’s decision to cut interest rates by a further 25 basis points last week. Lagarde said, “After a lengthy period of restrictive policy, our confidence that we are seeing a timely return to target has increased.”

Since the ECB believes that current rates are still constricting economic activity, it is likely to continue to bring down interest rates throughout 2025. Echoing this view, markets are currently pricing in 100 basis points of cuts in the European Central Bank’s next four meetings. This would see the deposit facility rate decrease to 2% by June next year. PMIs for the Eurozone were also released on Monday, with Manufacturing staying in line with last month’s figure at 45.2 and Services showing expansion again at 51.4 after falling below 50 last month.

The Eurozone Final CPI year-over-year dropped slightly below expectation when it was released on Wednesday, coming in at 2.2%.

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