February 7, 2025 – Written by Tim Boyer
STORY LINK Pound to Euro and Dollar Exchange Rates Rally Ahead of US Jobs Test
The Pound vs Euro (GBP/EUR) and Pound to Dollar (GBP/USD) exchange rates dipped in immediate reaction to Thursday’s Bank of England (BoE) rate cut before rallying on Friday.
Domestic data has provided an element of support for the Pound, and markets also took note of comments from BoE Governor Bailey that not too much should be read into the latest vote split.
Markets overall were slightly less confident that there would be three further rate cuts during 2025, which curbed the potential for further Pound selling.
According to Danske Bank, “More broadly, we expect EUR/GBP to move lower in the coming quarters driven by a relatively hawkish BoE, and a growth pickup in the UK relative to the euro area in 2025.”
The bank has a 12-month GBP/EUR forecast of 1.2200.
The Pound to Dollar (GBP/USD) exchange rate also rallied to 1.2460 as the dollar edged lower.
The US jobs data will spark additional volatility later in the day.
Consensus forecasts are for an increase in non-farm payrolls of around 170,000 for January from 256,000 previously.
Importantly, the BLS will also issue annual benchmark revisions to the payrolls data with expectations that there will be substantial downward revisions.
ING commented; “The dollar faces downside risks today as US payrolls should slow and annual benchmark revisions could be significant.”
Halifax reported that house prices increased 0.7% in January after a 0.2% decline previously and compared with consensus forecasts of a 0.4% increase.
There was a slowdown in the annual increase to 3.0% from 3.4%.
Halifax Head of Mortgages Amanda Bryden commented, “Despite geopolitical uncertainties, and waning consumer confidence, other key indicators look fairly positive for the housing market.”
The Bank of England rate cut will help underpin confidence, and she added, “the fundamental issue in the housing market remains the lack of supply. This long-term trend, coupled with a gradual improvement in affordability, should support further modest house price growth this year.”
The latest data, compiled by the British Retail Consortium and Sensormatic Solutions IQ, reported that there was a 6.6% increase in annual retail footfall for the five weeks ending on February 1st.
Traders continued to digest the BoE rate cut, and Danske Bank commented, “We expect the next 25bp cut in May with the Bank Rate ending the year at 3.75%. However, we highlight that the risk is skewed towards a swifter cutting cycle in 2025.”
On Friday, there will be a technical announcement from the ECB on the neutral rate of interest rates.
A higher estimate could dampen expectations of extended rate cuts, but MUFG expects that economic conditions will dominate in the short term.
MUFG added, “If the economy worsens and inflation eases further, then the ECB will likely continue easing, especially if there’s a demand shock related to tariffs being implemented by the Trump administration.”
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