- Pound (GBP) is rising after losses last week
- UK politics are in focus this week amid questions over PM Starmer’s position
- Euro (EUR) is falling amid renewed trade tariff questions with the US
- German IFO business climate rises to a 5-month high
The Pound-Euro (GBP/EUR) exchange rate is rising modestly on Monday after losses last week. The pair fell -0.49% last week, settling on Friday at €1.1445. It traded between €1.1425 and €1.1515. At 11:30 UTC on Monday, GBP/EUR trades 0.03% higher at €1.1449.
The pound came under pressure in the previous week after data paved the way for further Bank of England interest rate cuts.
Data showed that UK unemployment rose to a five-year high, wage growth slowed, and inflation also cooled to 3% YoY in December from 3.4%. The Bank of England expects inflation to ease to 2% by April. The market expects the Bank of England to cut interest rates by 25 basis points in the March meeting after leaving rates unchanged in a narrow vote in February.
This week, the UK economic calendar is relatively quiet, meaning attention will be firmly focused on political fears surrounding the Labour government ahead of a crucial by-election.
The Gorton and Denton by-election on the 26th of February poses significant risks to Starmer’s staying as Prime Minister. The market’s default assumption appears to be that any change of Prime Minister or Chancellor could pivot the Labour government to the left.
The euro is inching lower despite stronger-than-expected German Ifo business sentiment and as the European Union warns Trump that it will not accept an increase in US tariffs, demanding the US stick to the terms of the trade agreement reached last year, saying a deal is a deal.
On Friday, the US Supreme Court ruled that Trump’s original reciprocal trade tariffs were illegal, prompting Trump to announce 15% global tariffs over the weekend.
On the data front, German Ifo sentiment improved in February, rising to 88.6, up from 87.6 in January, marking the highest level since August and suggesting that the German economy is showing signs of recovery. That said, renewed tariff uncertainty could undermine the outlook going forward.
