As we close out 2024, the Pound to Euro (GBP/EUR) exchange rate has been a standout performer, reaching a 33-month high of 1.2150. This milestone reflects the strength of Sterling, buoyed by shifting yields and robust economic fundamentals.

Throughout the year, the GBP/EUR rate demonstrated remarkable resilience, as shown in the graph below that captures the key movements and peaks of 2024. Despite minor corrections, the Pound held strong, supported by economic growth and the Bank of England’s (BoE) hawkish stance.

What’s Driving Sterling’s Strength?

The surge in GBP/EUR was not coincidental. The UK’s economic outperformance, rising wages, and persistent inflation all contributed to Sterling’s upward trajectory. The BoE's cautious but firm approach to monetary policy further reinforced market confidence.

2025 Outlook: Will GBP/EUR Break 1.2200?

Looking ahead to 2025, market analysts are eagerly watching whether the Pound can surpass the 1.2200 threshold – a level last seen before the 2016 Brexit referendum. Investment banks offer a mixed but generally optimistic outlook:

• Goldman Sachs predicts GBP/EUR could climb to 1.2660 by the end of 2025, citing early-year strength with potential volatility later.
• Danske Bank anticipates near-term gains, driven by a hawkish BoE and strong economic indicators. However, they project a possible year-end rate just below 1.2200 as current tailwinds may ease.
• RBC Capital Markets foresees early Pound strength but expects a retreat to 1.1765 by year-end.
• ING points to favorable fundamentals that could see EUR/GBP revisiting Brexit-era levels, supported by improving UK-EU relations and BoE-ECB policy dynamics. However, they caution that dovish signals from the BoE could limit further gains.

Key Factors to Watch in 2025

1. BoE Policy Decisions – Any shift towards aggressive easing could introduce downside risks for GBP.
2. UK vs. Eurozone Economic Growth – The UK’s economic performance relative to the Eurozone will remain pivotal.
3. Geopolitical Relations – Strengthening ties between the UK and the EU may continue to bolster the Pound. Markets are also braced for a more aggressive trade policy from the new US Trump Administration with the risks that tariffs will be imposed on Europe.According to Barclays; “the Eurozone, with its greater reliance on goods trade, appears more exposed than the UK. That said, the UK would likely not emerge unscathed from a trade war, as it remains a highly open and trade-reliant economy.”

Reflecting on 2024

At Send Money Overseas, we’re proud of the milestones we achieved this year and the trust our clients have placed in us. Our commitment to providing excellent exchange rates, coupled with a personal, jargon-free service, remains at the heart of what we do. We’re here to guide you through your currency exchange decisions, ensuring you’re informed every step of the way.

Thank you to all our clients for making 2024 a success. We look forward to continuing to help you navigate the currency markets in 2025.