Published: 19/02/2025 By ECAP
The British Pound strengthened against the Euro and Dollar following stronger than expected UK inflation data. In fact, January's inflation rose to 3%, up from 2.5% in December, primarily driven by higher transport, food, and education costs. This surge may limit further Bank of England rate cuts. As a result, expectations for aggressive rate reductions have decreased, supporting the Pound’s recent recovery.
The Euro is under strain as inflationary pressures remain high, limiting the scope for aggressive rate cuts by central banks. With services inflation rising and underlying inflation trends strong, concerns about price pressures continue to build. This environment is expected to weigh on the Euro's performance, as market expectations shift and economic uncertainty lingers, leading to potential challenges for the Euro in the near term.
The U.S. Dollar has weakened recently, partly due to the reversal of the "Trump trade" and softer economic data. This has led to the Dollar dropping to its lowest level in two months. Despite this, analysts expect the Dollar to stabilize later in the year, driven by rising U.S. tariffs and economic outperformance, which may contain the current weakness.
Data supplied by GC Partners