Sterling Update: Pound Started the Week on the Front Foot

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

GBP

The pound started this week on the front foot as it traded just shy of 2-month highs on Monday. Concerns have somewhat abated about the impact on the British economy of US President Donald Trump’s tariffs and Sterling’s strength follows better than forecasted news about UK GDP last week. It rose 0.4% in December alone and a cumulative 0.1% for the last quarter of 2024. The Bank of England’s governor Andrew Bailey commented in an interview published on Monday that inflation was slowing and an expected pick-up in price growth later this year is unlikely to have long-term impacts on the UK economy.

Meanwhile, when asked about Ukraine during a gathering of European leaders in Paris, Prime Minister Keir Starmer said “Europe must play its role” indicating the potential for increased defence spending. Whether he has to act on his promise, which could have sustained impacts on economic policies, may rest on the outcomes of Monday’s emergency summit in Paris between European leaders and talks due to begin Tuesday in Saudi Arabia between the US and Russia.

A series of Labour market data was released on Tuesday, kicking off with Claimant Count Change for January 2025 which increased on the month at 22,000 and up on the year at 1.750 million, hinting at a softening labour market. UK unemployment rate came in above estimates a year ago and up in the last quarter at 4.4%. Finally, annual growth in employees’ average regular earnings excluding bonuses, was 5.9% in October to December 2024, and annual growth in total earnings including bonuses was 6.0%. UK CPI was released 7am Wednesday, coming in above forecasts at 3.0% in the 12 months to January 2025, up from 2.5% in the 12 months to December 2024. The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from transport, and food and non-alcoholic beverages; the largest downward contribution to both came from housing and household services

Bloomberg Economics report they expect the headline inflation average to hover above the 3% mark throughout 2025. However, with the economy currently somewhat weak, they are predicting three further interest rate cuts this year, one more than the two cuts currently being priced in by markets. This week rounded up with retail sales reporting this morning, coming in above forecasts at 1.7% In January 2025, rebounding from a 0.6% decline in December 2025. This suggests a positive shift in consumer spending at the start of the year. Finally, in February 2025, the Flash UK Services PMI increased to 51.1, a two-month high, while the Flash UK Manufacturing PMI dropped to 46.4, the lowest in 14 months.

EUR

With a snap election on Sunday 23rd February looming in Germany, the incumbent Chancellor Olaf Scholz said on Saturday that he anticipated the new government would create an exemption for defence and security spending when dealing with the nation’s constitutional limits on public debt. The election currently looks unpredictable with only 30% of voters expected to back Friederich Merz’s centre-right CDU party and polls indicating 38% of voters remain undecided.

This week was a busy week kicking off with substantial improvement in economic expectations in Germany with the German ZEW Economic Sentiment coming in above forecasts at 26.0, up by 15.7 points from January. This leap hints at growing optimism among experts around Germany’s economic future. On Thursday German PPI surprised on the downside, coming in in line with last month’s figure of -0.1%, forecast were for a 0.6%, hinting at a reduction in price of goods sold by manufacturers.

On Thursday, eurozone consumer confidence reporting came in in line with last month’s figure at -14. Finally, Eurozone PMI figures were released this morning with Flash EUR PMI Services coming in at a 3-month low and below forecasts at 50.7. Flash EUR Manufacturing PMI came in at a 9-month high and above forecasts at 47.3.

Views expressed in this commentary are those of the author and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.

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