The British pound remained steady against both the euro and the dollar on Thursday as investors awaited key decisions from major central banks.
The European Central Bank (ECB) is set to announce its policy decision later in the day, while the Bank of England (BoE) and the Federal Reserve (Fed) will reveal their final policy decisions of 2024 next week.
Unlike the ECB and the Fed, which are expected to lower interest rates by 25 basis points, the BoE is anticipated to maintain its current rates when it announces its decision next Thursday.
On Thursday, the pound traded relatively flat at 82.39 pence per euro, following a surge on Wednesday to its strongest level against the euro since March 2022.
"Euro-sterling moving lower makes sense. The economic outlook in the UK is bleak, but the eurozone's situation appears even worse," said Michael Brown, a strategist at Pepperstone.
He added, "In addition, France and Germany are grappling with significant political uncertainties." France's prime minister Michel Barnier was ousted last week, while Germany is preparing for early elections in the first quarter of 2025 after the collapse of its ruling coalition.
The BoE is expected to adopt a cautious approach to rate cuts in 2025, with markets predicting just three 25-basis-point reductions by the end of the year. Analysts anticipate the ECB to implement rate cuts at every meeting in the first half of 2025 and potentially beyond. Meanwhile, the Fed is forecasted to make only two more rate cuts in 2025 after next week's expected reduction.
This slower pace of easing by the BoE has supported the pound throughout 2024. The British currency has gained 0.1% against the U.S. dollar this year, making it the only major currency to strengthen against the dollar in 2024.
On Thursday, the pound edged down slightly by less than 0.1% against the dollar, trading at $1.2743.
"There’s a risk that by the first quarter of next year, the BoE could panic due to a significantly weaker labor market," said Brown. "This might lead to a more aggressive pace of rate cuts than currently expected, posing challenges for the pound in early 2025."