By Matthew Boyle
Yesterday’s release of UK GDP data only adds to the ongoing woes of the UK economy and the strength of the Pound. Whilst the ONS reported UK GDP grew by 0.1% in Q4 of 2025 this was below the expected figure of 0.2%. Whilst in the past few days the Pound looks to have stabilised somewhat, largely due to easing political uncertainty, bets are rising on the Bank of England cutting interest rates next month, alongside lower inflation UK CPI data is released later this month. With the increasing likelihood of a rate cut comes Pound weakness, which is largely why we have seen GBP-EUR rates drop from their recent near 8-month highs. Euro buyers ill want to consider this, and to add, given it seems a matter of time before unrest returns for Starmer, and uncertainty as to his tenure as Leader of the Labour party and UK Prime Minister.
In contrast to the BoE’s plans to cut rates, the European Central Bank’s policy remains one of holding interest rates for the time being, which Is keeping the Euro strong and mounting pressure on the currently uncertain Pound.
Whilst Europe is holding, a UK cut next month isn’t a certainty, particularly given inflation data is released on the 18th of this month. If inflation levels rise this could once again stall plans by the BoE to cut interest rates. Given the recent data released from the British Retail Consortium suggesting that food and shop prices are still on the rise, this scenario is a possibility and one which would allow the Pound to re-gain recently lost strength.
Whether you are a buyer or seller, the market is uncertain at present, with the next few weeks looking pivotal for exchange rates. So unless you are a gambler removal of risk is key.
GBP/USD
This week saw the US Dollar regain some ground following mid-week data showing a US jobs market stronger than expected. The US Bureau of Labour reported that 130k jobs were added in January which was significantly above the 70k expected and December’s figure of 48k. However, following the underwhelming UK GDP data released yesterday the Dollar gains were erased, albeit the greenback held more stability against the single currency.
The strengthening USD has helped GBP-EUR rates remain buoyed due to the “see-saw” effect – when the Dollar strengthens it encourages the Euro to weaken against the Pound and vice-versa – and so needs to be considered as to which way GBP/EUR rates will move as we progress through the year.
This week’s data closes out with Eurozone GDP at 10.00AM and US inflation data at 1.30PM. Little change is expected from what is currently a very stable single currency. Forecasts suggest US inflation may be cooling which would re-ignite calls for the Federal Reserve to cut rates and with it a likely weakening Dollar, in turn helping the Euro to strengthen. Of course, the data will determine the direction of the market movement, but Dollar and Euro aside, undoubtedly the Pound looks the most uncertain of these three majors at present. Whether buying or selling, should you have any upcoming transfers speak to your currency consultant today – we offer several ways in which you can order your currency to help you remove risk, prevent your purchase becoming unexpectedly more expensive, and to make your money go further.