Euro Rises Against Pound – Following German Election Results

Germany’s federal election took place on February 23, 2025, and the financial market reacts as the Euro rises against the Pound. The increase reflects the power of the German currency in the Eurozone and the ability of political activities to influence currency.

With the election creating such an increase, one can suggest that the results are positive for a stable, projected growth economy for the Eurozone. The Pound essentially lowers itself as a currency for an island nation still in turmoil with projected economic strife for the foreseeable future.

Some Background

After Germany’s election, Friedrich Merz became the nation’s Chancellor. The 2025 German election results were as follows: CDU/CSU coalition 28.5%, foreign parties, AfD 18.2%, SPD 22.1%, Greens 14.8%, relegated, Merz becomes Chancellor with the goal of economic prudence.

Merz pledged fidelity to German endeavors and a singular focus on Eurozone integrity and foreign relations. Investors did not mind fundamental changes, they would have accomplishments on the line over the next few years, but they did not want their work to become stalled by ultra-partisan activities. The market wants a steady hand in a tumultuous atmosphere.

By March 2025, the Euro gains against the Pound, trading at 1.2150, a high not seen since January 2025. Eurozone industrial production is strong out of Germany, and investor confidence is positive over the presumed CDU/CSU-SPD coalition budget announcement.

However, the Pound is under pressure yet again as retail sales fell 2.3% in February, making investors fear how well consumers are spending.

With the Bank of England meeting in April, just like the European Central Bank (ECB), to set new interest rates, the Pound’s projection will keep rates low for a hold, while the ECB predicts more promising things down the line.

Economic Impact on The Euro

The Euro increased in value against the Pound, as well. By the close of the trading day, the Euro/Pound cross settled at 1.2121, 0.9% up from the three-month average. There are a few reasons for this increase.

Anticipated government action from the new leader’s promised campaign, which focused on large-scale economic reconstruction and reinvestment in domestic infrastructure, makes traders believe good things for investor sentiments are on the way.

With the election settled and no referendum in any country’s immediate future, investor risk premiums have lessened for Euro-positive investments.

New news within the last week about the Eurozone’s 1.8% GDP growth in Q4 2024 and a 2.3% inflation made traders feel like this geographic area is growing and that this currency can be trusted.

As demand for Euros trumped what the three-month averages predicted, traders allowed the increase of the currency value to flow naturally. Such increases of the Euro make sense, as it is a haven for currency when stability is wavering.

The Pound’s Performance

Yet at the same time, the Pound is weak because the UK is not in a stable financial position. The current exchange rate is weak because the UK’s GDP decreased 0.2% in Q4 2024, inflation is at 4.1%, and energy prices continue to rise.

The fallout from Brexit remains, while some may argue there are new opportunities to trade, trade is more regulated with less access to international oceans, meaning the ability for the UK to encourage more substantial economic growth is stunted.

Skeptical investors compare the Pound to the Euro as the Pound holds on to economic stability with increasingly more governmental intervention during a cost-of-living crisis. Thus, the Pound is weak compared to a strong Euro.

Financial Market Analysis and Potential Future Implications

Despite all of this, the financial and currency markets rejoiced over the expected victory of the Euro. 

The German DAX index surged 1.5% in after-hours trading, showcasing investors’ confidence in German stocks. Consequently, the Euro’s exchange rate is expected to be predictable in the forex market over the short term.

Currency traders are purchasing Euros at an insane level of time, value, volume, and average trade.

Even the European Central Bank, which recently dropped the bank’s key interest rate to 2.75%, remains indifferent but not destructive of what could be a brilliant future with just the right amount of economic growth.

According to Christine Lagarde, she will commit to inflation reduction via the structural changes needed for stabilization of the new government’s initiatives.

The confidence in the ECB to respond to the new government’s structural changes and intentions gave greater confidence and thus stabilization of the Euro.

The Euro will probably be predictable in the short term. The Eurozone avoids recession, and Germany is at the helm of a stable economy, but not stepping on people’s toes internationally, it has maintained a reputation for sociological benefit that many will invest and spend there still. The new coalition will probably keep taxes low and prioritize new technologies and innovations so that even more international attention will be drawn to the area, and the Euro will have a healthy equilibrium.

Final Words

The German election of February 2025 has catalyzed a notable shift in currency markets, with the Euro rising against the Pound amid renewed confidence in the Eurozone.

Germany’s stable leadership and promising economic policies have invigorated investors, while the UK’s domestic struggles have weakened the Pound’s standing.

As financial markets digest these developments, the interplay between political decisions and economic outcomes remains critical.

For businesses, investors, and everyday readers alike, understanding these currency movements offers valuable insights into the evolving global landscape.

Even the currency market was affected. Euro vs. Pound. This makes sense. The Euro is rising against the Pound because the Eurozone is stabilizing. New leaders in Germany signal new horizons and possible great changes in restructured economic possibilities.

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