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The pound has shown stability against the euro and the dollar in recent days, with investors keeping an eye on key decisions from major central banks. As the close of 2024 approaches, movements in the currency market appear to be carefully measured in response to numerous economic and political factors.
Key monetary policy decisions
The market is eagerly awaiting monetary policy announcements from central banks. This Thursday, the European Central Bank (ECB) will announce its decision, while the Bank of England (BoE) and the Federal Reserve (Fed) of the United States have scheduled their latest monetary policy announcements for next week.
The BoE, according to analysts, will keep interest rates unchanged at the end of the year, standing out as the only major central bank that will not opt for an additional cut. In contrast, both the ECB and the Fed could reduce rates by 25 basis points, reflecting their efforts to revive economic growth.
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However, looking ahead to 2025, a slower pace of cuts is expected from the BoE, with just three additional moves projected over the next year.
Sterling stable but under pressure
In recent days, the pound has remained around 82.39 pence against the euro, after recently reaching its strongest level against the single currency since March 2022. Against the dollar, the pound barely fell 0.1% and was at $1.2743.
GBPUSD quote in 2024. Source: Yahoo Finance
This relative stability can be attributed to caution on the part of investors in the face of a complex economic outlook. Although the UK faces considerable challenges, Pepperstone strategist Michael Brown notes that the outlook in the euro zone is even more bleak, which has slightly supported the pound against the euro.
Despite their resistance, the warnings are clear. Brown also indicated that a weakened British labor market could force the BoE to take more aggressive measures, which could put pressure on the pound in the early months of 2025.
Political and economic factors in Europe
Currency movements are not only influenced by monetary policy, but also by political uncertainty in continental Europe. France is facing political turbulence after the dismissal of its prime minister, Michel Barnier, which calls into question the economic stability in the country. Likewise, Germany is preparing for early elections in 2025 after the collapse of its ruling coalition.
These instabilities, coupled with uncertain economic policy in the eurozone, could further weaken the euro against the pound and the dollar in the coming months.
Outlook for 2025
Looking ahead, analysts expect the ECB to maintain an aggressive pace of rate cuts through the first half of 2025, while the Fed will be more dovish. These dynamics, combined with projected caution from the BoE, could continue to support the pound against other major currencies, but threats of abrupt changes in monetary policy or unexpected political events should not be overlooked.
In summary, sterling is in a position of relative strength at the end of 2024. However, both economic fundamentals and underlying political risks signal that markets may be on track for a more volatile start to the year. Investors will need to remain attentive to developments on the global stage and adjust their strategies accordingly.
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