- Pound (GBP) falling after gains last week
- Goldman Sachs expects three rate cuts in 2026
- Euro (EUR) rises against the pound
- ECB is not expected to cut rates in February
The Pound-Euro (GBP/EUR) exchange rate is falling after gains yesterday. The pair rose 0.07% in the previous session, settling on Monday at €1.1475. It traded between €1.1441 and €1.1484. At 17:30 UTC on Monday, GBP/EUR trades -0.26% at €1.1448.
The pound briefly rose to its strongest level against the euro and the US dollar in two months before falling lower.
The gains in the pound were largely driven by the Bank of England’s interest rate decision in early December, when the central bank cut rates to 3.75%, but the vote was tight at 5 to 4.
Furthermore, BoE Governor Andrew Bailey indicated that the pace of cuts could slow.
That said, inflation cooled more than expected in November, and Goldman Sachs analysts expect the UK CPI to cool further in the coming months. As a result, analysts at the investment bank expect the BoE to cut rates three times in 2026 to 3%.
The euro is recovering against the pound after briefly falling to a 2-month low, but continues to fall lower against the USD.
Currency markets continue to experience thin liquidity during the Christmas and New Year holidays, which is likely to continue until January 5th.
The EUR remains broadly supported amid expectations that the European Central Bank will not cut interest rates again anytime soon, as expectations of a February 2026 rate hike have eased, particularly with recent improvements in economic activity across the region and with downside risks to inflation receding.
Money markets currently price in less than a 10% probability that the ECB will reduce rates in February. Attention instead is on further economic data from the region, with PMI figures expected at the end of this week.
