By James Caley
The first two days of 2025 have proven challenging for both the Pound and the Euro against the Dollar. Sterling hit its lowest level since April, while the Euro dropped to a level not seen since November 2022.
The strength of the Dollar has been driven by several factors. Higher gas and oil prices from September to December have placed significant pressure on UK and European businesses. This has indirectly strengthened the Dollar, as the largest exporters of oil and gas trade predominantly in USD.
Additionally, the Dollar has benefitted from investor optimism surrounding the economic policies of President-elect Donald Trump. Expectations that his policies will boost economic growth and increase inflationary pressures in the US have led to predictions that the Federal Reserve will slow the pace of interest rate cuts. This scenario is favourable for the Dollar and US Treasury yields.
Further bolstering the Dollar, US Initial Jobless Claims for the week ending December 27 came in lower than projected. Should this Friday’s US Non-Farm Payrolls report deliver a favourable result, the Dollar is likely to strengthen even further against both Sterling and the Euro.
Sterling was the worst-performing G10 currency at the start of 2025, falling by as much as 1.25% on January 1st. Investor concerns over economic growth in Europe and the anticipation of interest rate cuts in the UK have weighed heavily on the Pound. These factors are expected to continue applying downward pressure on GBP.
With Sterling and the Euro both struggling against the Dollar, how are they performing relative to each other?
The GBPEUR exchange rate has been trading within a narrow one-cent range over the past week. Sterling held a slight advantage on New Year’s Eve but dropped more than a cent on January 2nd before recovering to the midpoint of last week’s trading range.
This week, several key data releases could influence the GBP/EUR exchange rate. European inflation and retail sales data are expected, and any surprises in the forecasted figures could shift the balance between the two currencies. With no significant UK data scheduled for release, attention will focus on developments in other jurisdictions and their potential impact on the UK economy.
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Key Data Releases This Week:
Monday
- German Inflation
Tuesday
- French Inflation
- Italian Unemployment
- Eurozone Inflation
Wednesday
- US ISM Services PMI
- US Job Openings (JOLTS)
- German Retail Sales
Thursday
- Eurozone Retail Sales
- US FOMC Minutes
Friday
- Michigan Consumer Sentiment Index
- US Non-Farm Payrolls
- US Average Hourly Earnings