Sterling Steady Against Euro and Dollar

Sterling Remains Stable Against Euro and Dollar

By Samuel Indyk

LONDON (Reuters) - The British pound was steady against the euro and the dollar on Thursday, with currency investors sitting tight before key central bank decisions.

The European Central Bank announces its policy decision later in the day, while the Bank of England and Federal Reserve are scheduled to announce their last policy decisions of 2024 later next week.

The Bank of England is seen holding rates steady when it announces its decision next Thursday, in contrast to the other major central banks, who are seen lowering rates by 25 basis points.

The pound was relatively flat at 82.39 pence per euro, after hitting its strongest against the single currency since March 2022 on Wednesday.

"Euro-sterling moving lower makes sense. The economic outlook in the UK looks pretty grim but I think the euro zone is the only place where it's actually worse," Michael Brown, strategist at Pepperstone, said.

"You also have two big doses of political uncertainty on top of that in France and Germany."

France's prime minister Michel Barnier was ousted last week, while Germany is expected to vote for a new government in the first quarter of 2025 after the collapse of its ruling coalition.

The BoE meanwhile is expected to be cautious next year in regards to rate cuts, with markets pricing in just three 25-bp moves by the end of 2025.

Analysts see the ECB cutting rates at every meeting in the first half of next year and possibly beyond, while markets are pricing just two more rate cuts from the Fed in 2025 after next week's expected cut.

The slower pace of expected easing from the BoE has helped the pound this year, which has eked out a 0.1% gain against the U.S. currency, the only major currency to be stronger than the dollar in 2024.

On Thursday, the pound was down less than 0.1% versus the dollar at $1.2743.

"There's a risk that we get to the first quarter of next year and the BoE end up panicking as a result of a significantly weaker labour market," Pepperstone's Brown said.

"We could end up with a much more aggressive pace of easing that markets aren't pricing and that could be a headwind for the pound to deal with early next year."

(Reporting by Samuel Indyk; Editing by Andrew Heavens)