Jamie Spencer
The British pound lost ground against the dollar on Friday after disappointing economic data, while the euro strengthened on news of a German debt deal.
Sterling fell as much as 0.25% to $1.2918 before recovering to $1.2943. It remained close to its four-month high of $1.2990 reached on Wednesday.
UK Economy Shrinks Unexpectedly
Britain’s gross domestic product (GDP) contracted by 0.1% in January, defying economist expectations of a 0.1% expansion, according to a Reuters poll.
Despite the weak growth data, analysts do not expect the Bank of England to adopt a dovish stance on interest rates. A survey by the central bank on Friday showed long-term inflation expectations in the UK have reached their highest level in over five years.
“We think the weaker growth data is an important reminder that UK cyclical and fiscal dynamics may continue to be more challenging than elsewhere,” said Dominic Bunning, global forex strategist at Nomura.
Euro Strengthens on German Debt Deal
The euro gained 0.5% against the pound to trade at 84.225 pence, following reports that German Chancellor-in-waiting Friedrich Merz reached an agreement with the Greens to increase state borrowing.
The news boosted the shared currency, lifting confidence in Europe’s largest economy.
Sterling’s Safe-Haven Appeal Amid Trade Tensions
Analysts have viewed the British pound as a relative safe-haven asset amid U.S. President Donald Trump’s escalating trade war. Unlike the European Union, the UK has refrained from imposing retaliatory tariffs after Trump’s steel and aluminum duties took effect on Wednesday.
Despite Friday’s losses, sterling is set to post a modest 0.1% weekly gain after last week’s strong rally, its best in over two years.
