Euro softens against British Pound, traders await Germany and Eurozone GDP data
- EUR/GBP declines to near 0.8345 in Friday’s early European session.
- ECB kept the key interest rate on hold at 2.5% at its October meeting.
- BoE is widely expected to raise its benchmark interest rate by 25 bps to 4.00% next Thursday.
The EUR/GBP cross edges lower to around 0.8345 during the early European trading hours on Friday, pressured by divergent monetary policies. Traders will keep an eye on the preliminary readings of Q3 Gross Domestic Product (GDP) from Germany and the Eurozone later on Friday.
As widely expected, the European Central Bank (ECB) left its deposit rate at 2.50% at the October policy meeting on Thursday, following a rate hike by 25 basis points (bps) in September. According to a statement, the Governing Council said that rising energy prices posed upside risks to the inflation outlook and downside risks to growth, but that underlying inflation and wages were so far broadly stable.
Money markets were pricing in around a 67% probability of a rate increase in December following the announcement, according to LSEG data.
Traders continue to assess the UK Autumn Budget and look ahead to upcoming Bank of England (BoE) decisions. The United Kingdom (UK) set out a target date for defense spending to rise to 3% of Gross Domestic Product (GDP), as the Finance Minister John Healey announced billions in aid for Ukraine in a “clear message to Moscow.” Healey on Wednesday set a target date of 2030 for the 3% figure while reaffirming its NATO commitment to reach 3.5% by 2035.
The BoE is likely to lift its benchmark interest rate by 25 bps to 4.00% at its upcoming policy meeting next Thursday. This anticipated hike will break an 11-month rate hold at 3.75%.
UK budget eyed as gilt risk premium and EUR/GBP drift come into focus
According to ING, some of the recent underperformance in UK government bonds may be vulnerable to a retracement around the budget announcement. ING's Rates Strategist, Michiel Tukker, estimates that there is a "20bp risk premium in 10-year UK gilt yields – some of which could come out of the market during today's UK budget release." The bank argues that the budget itself "is not expected to have too much say on the Bank of England's tightening prospects," although it cautions that "any upside surprises on minimum wage adjustments could hawkishly ripple through money markets."
ING adds that "some narrowing in the gilt-bund spread today could be a reminder that the UK looks to be one of the few G7 economies heading in the right fiscal direction into 2027," with forecasts for the budget deficit "heading inside 4% of GDP as higher inflation drags more income tax payers into higher tax brackets." On the currency side, ING notes that "EUR/GBP is holding above 0.8350 support and is looking heavy." Barring "any surprise budget giveaways that hit gilts," the bank believes "it looks as though EUR/GBP can stay heavy and potentially nudge down to the 0.8315 area."
Lagarde flags upside inflation risks but sticks to measured Euro stance
The FXS Speechtracker score of 6.2/10 is marginally above the speaker’s historic 6.1/10 baseline, reflecting a slightly more impactful but still balanced communication. Lagarde acknowledged that the Euro area economy is expanding in Q3 and that near-term growth should be underpinned by AI investment, government spending and improving exports, but stressed that risks to growth are to the downside as renewed energy price increases, tighter financial conditions and fiscal uncertainty weigh on confidence.
On inflation, the tone is clearly hawkish: energy prices have risen beyond the baseline, headline inflation is expected to stay well above target in coming quarters, and risks to inflation are to the upside, even as longer-term expectations remain around 2% and the ECB wage tracker points to 2.5%-2.8% wage growth. Yet the decision to hold rates, framed as a unanimous choice amid unchanged underlying inflation and high uncertainty, signals a cautious, data-dependent stance that tempers the hawkish rhetoric and keeps Euro bulls from fully pricing in an imminent tightening shift.
Technical Analysis: EUR/GBP maintains a bearish outlook below the 100-day SMA
In the daily chart, EUR/GBP extends its slide well beneath the 100-day simple moving average (SMA) and the Bollinger middle band, which together hint at a firmly bearish near-term bias. Price is now closer to the lower Bollinger band support, while the Relative Strength Index (14) sits deep in oversold territory near 18.6, suggesting persistent selling pressure even as the pair approaches a potential exhaustion area.
On the topside, initial resistance is seen at the Bollinger middle band near 0.8420, followed by the upper Bollinger band around 0.8512, with the 100-day SMA at 0.8540 reinforcing a broader cap on recovery attempts. On the downside, the lower Bollinger band at 0.8325 offers immediate support; a decisive break beneath this floor would open the way toward new lows, whereas a rebound from this zone could trigger a corrective bounce back toward the 0.8420 area.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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