Euro stays under pressure: Sterling Update

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

UK CPI inflation expectations remain sticky, but a Bank of England cut in March is still possible

Yesterday’s Decision Maker Panel inflation expectations data will have disappointed the Bank of England. The figures suggest inflation could remain sticky and were collected before the conflict in the Gulf broke out. This raises questions about whether the Monetary Policy Committee could delay a rate cut in March.

However, Chief Economist Huw Pill noted in Treasury Select Committee testimony that the Bank intended to look beyond the inflation trough, just as it looked through the peak in 2022, so shouldn’t it ignore short term price movements driven by external shocks. These would not be influenced by interest rate changes in any case, which reduces the likelihood that recent events meaningfully alter the Bank’s view.

Sterling has struggled against the US dollar this week while holding firmer against the euro. Experience tells us that periods of GBP resilience against the EUR often fade. Markets may have misread the risks around the March MPC meeting, which could leave GBP vulnerable to renewed pressure versus the EUR.

Euro pressure persists as shipping slows and energy costs continue to rise

The euro’s recent weakness has not stemmed from domestic economic fundamentals alone. Two conflicts on or near the Euro Area’s borders — Russia–Ukraine and the US/Israel–Iran escalation, have increased both energy‑supply risks and geopolitical uncertainty.

At the same time, risk‑averse sentiment has limited any further shifts from USD FX reserves into other currencies or gold.

The outlook for the euro remains uncertain, and the balance of risks still appears tilted to the downside. EURUSD could extend its slide, possibly searching for support near $1.15.

GBPEUR may be closer to its near-term peak. Each GBP rally has struggled for momentum, and the pair’s trajectory could hinge on whether markets have over-priced the likelihood that the Bank of England delays policy easing.

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