The EUR/GBP exchange rate continued its upward trajectory, approaching 0.8375 during the early European session on Friday. The British Pound (GBP) remains under significant pressure due to concerns over the United Kingdom’s fiscal outlook and the Bank of England‘s (BoE) capacity to manage inflation.
The GBP’s sharp decline followed a rise in the yields of the UK’s 10-year treasury bonds, reaching their highest levels since 2008. This surge in yields has raised alarm over the UK’s financial stability, prompting a notable depreciation of the pound.
The fall in the GBP was further compounded by comments from Bank of England Deputy Governor Sarah Breeden, who stated on Thursday that recent data supported a gradual reduction in interest rates, though the pace of such cuts remained uncertain.
Meanwhile, on the Eurozone front, the release of preliminary December Harmonized Index of Consumer Prices (HICP) data is expected to influence the European Central Bank (ECB) to proceed cautiously with its rate-cutting plans, providing some support for the euro. According to Charlie Cornes, senior economist at the Centre for Economics and Business Research in the UK, the ECB is likely to implement only one rate cut in the first half of 2025, with further reductions expected later in the year.
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