Pound to Euro Rate Poised at Key Level
- Written by: Gary Howes
Image © Pound Sterling Live
Pound sterling could be set to cross a key technical rubicon; however, stalled equity market momentum holds it back.
The pound to euro exchange rate (GBP/EUR) has edged to 1.1476 in Tuesday's holiday-thinned trade, putting it close to the two-month high reached on Christmas Day at 1.1482.
Tuesday's slight rise is nevertheless worth watching as it places GBP/EUR above the 100-day exponential moving average (EMA) at 1.1470, which is a potentially significant technical level.
The 100-day MA has acted as something of a barrier, frustrating the pound's year-end rally by capping gains in this low-volatility and low-volume holiday period.
To be sure, we won't attach too much significance to any technical developments at this juncture, owing to the shallow depth of markets. Nevertheless, these are still two-month highs for euro buyers.
Be aware that the thin trading conditions mean most spreads on payments on bank accounts and with currency brokers are wider (i.e. the exchange rate you get is likely to be surprisingly poor). However, our partners at Horizon Currency will get you as close to the market rate as possible (they charge 0% fees) and are available to give you an up-to-the-minute quote in current market conditions.
What does the outlook hold for GBP/EUR?
Technical momentum is constructive and the exchange rate looks as though it wants to move higher, particularly if this break above the 100-day EMA can be sustained.
From here, the big 1.1520 resistance zone attracts.
However, there's reason for caution: stalled stock market momentum.]
As discussed in yesterday's piece, rising stock markets are conducive to a 'melt up' in the two key GBP exchange rates of GBP/EUR and GBP/USD.
Last week saw the S&P 500 hit a new all-time high, which helped deliver the two-month peak in GBP/EUR and the four-month high in GBP/USD.
The stock market rally has since waned, and this is probably why we have seen GBP/EUR consolidate around the 100-day EMA at the current time.
We suspect that a pulse of positive equity action would help propel the GBP/EUR towards 1.15.
Above: The S&P 500 rally has paused, resulting in a pause in GBP/EUR gains.
However, more staid trading conditions in global equities would probably mean we remain stuck around current levels as we see the year out.
"It’s the penultimate trading day of 2025, and the overriding theme is that global stock indices have lost momentum into year end. There are plenty of reasons for this, including decent returns for 2025, and investors waiting to make big trading decisions until after the Christmas break," says Kathleen Brooks, research director at XTB.
GBP Vulnerable to Slowing Labour Market
The pound still looks vulnerable on a multi-month timeframe, and we are still inclined to view the current year-end rally in GBP/EUR as a relief bounce.
For upside momentum to really rebuild, we will want to see January's data beat expectations. This is possible if data shows improved sentiment and activity following the budget.
If so, then the year-end rally can extend into early 2026.
However, one major headwind for sterling is data that shows the UK's jobs market is cooling noticeably.
The Bank of England will likely respond with a number of interest rate reductions next year. Given that the European Central Bank is unlikely to cut rates again, the interest rate differential will move against GBP/EUR.
This could keep rallies shallow and expose it to a move lower to 1.11 in H1.
