GBP Near €1.15 As PMI Revisions Weigh On EUR

The Pound to Euro (GBP/EUR) exchange rate traded sideways on Friday as markets digested the latest UK and Eurozone PMI releases.

DAILY RECAP:

The Euro (EUR) stumbled on Friday following the release of the Eurozone’s latest manufacturing PMI.

December’s finalised release saw the index revised down from 49.2 to 48.8, marking the factory sector’s weakest performance since April.

The data highlighted how falling backlogs and declining new orders are driving firms to cut staff, suggesting the malaise that has weighed on Eurozone manufacturing since 2022 is likely to persist into the new year.

Adding to the pressure on EUR exchange rates was the Euro’s negative correlation with the US Dollar (USD), as the latter attracted modest support on the first trading day of 2026.

Meanwhile, the Pound (GBP) traded in a narrow range after the UK’s own manufacturing PMI confirmed the factory sector’s recovery continued to gather pace at the end of 2025, as uncertainty linked to the autumn budget faded.

While the index rose to its highest level since September 2024, Sterling’s upside remained limited after the final reading was revised down to 50.6 from an initial estimate of 51.2.

The focus for GBP investors is now on whether manufacturing momentum can be sustained into 2026, with some analysts suggesting the Bank of England’s (BoE) December rate cut could encourage firms to increase investment.

Near-Term GBP/EUR Forecast: Soft Inflation to Apply Pressure to the Euro?

Turning to the week ahead, a key catalyst for movement in the Pound Euro exchange rate is likely to be the Eurozone’s consumer price index, due on Wednesday.

Economists expect December’s preliminary CPI to show a moderation in inflationary pressures, potentially placing modest pressure on the single currency.

Also of note for EUR investors will be Germany’s latest factory orders and industrial production data later in the week. If activity in the Eurozone’s largest economy remains subdued, it could weigh on EUR sentiment.

Meanwhile, UK economic releases are thin on the ground, with December’s finalised services PMI the main data point of note. Sterling could falter if service-sector activity is revised down in a similar fashion to manufacturing.