Euro slips against British Pound as traders await GDP data from Germany and Eurozone

• Early European trading on Friday sees EUR/GBP retreat towards 0.8345.
• At its October meeting, the ECB left its key interest rate unchanged at 2.5%.
• A 25 bps increase in the BoE’s benchmark interest rate to 4.00% is widely anticipated next Thursday.

Preliminary Q3 Gross Domestic Product (GDP) figures for Germany and the Eurozone, due later on Friday, are on traders’ radar. Ahead of those releases, EUR/GBP eases towards 0.8345 in early European trading, with diverging monetary policies weighing on the cross.

Thursday’s October policy meeting saw the European Central Bank (ECB) maintain its deposit rate at 2.50%, in line with broad expectations, after September’s increase of 25 basis points (bps). In its statement, the Governing Council identified higher energy prices as an upside risk to inflation and a downside risk to growth. Underlying inflation and wages, however, had remained broadly stable so far.

LSEG data showed that, after the announcement, money markets assigned roughly a 67% chance to a December rate increase.

With Bank of England (BoE) decisions approaching, traders are also weighing the UK Autumn Budget. The United Kingdom (UK) outlined a deadline for defence expenditure to reach 3% of Gross Domestic Product (GDP), while Finance Minister John Healey announced billions in assistance for Ukraine in a “clear message to Moscow.” On Wednesday, Healey put the target date for the 3% level at 2030 and reaffirmed the UK’s NATO pledge to reach 3.5% by 2035.

Next Thursday’s policy meeting is likely to bring a 25 bps rise in the BoE’s benchmark interest rate to 4.00%. The expected increase would end an 11-month spell with rates held at 3.75%.

UK budget puts gilt risk premium and EUR/GBP weakness in focus

Some of the recent weakness in UK government bonds could reverse around the budget announcement, according to ING. Michiel Tukker, ING's Rates Strategist, puts the premium at 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." In the bank’s view, the budget "is not expected to have too much say on the Bank of England's tightening prospects," though it warns that "any upside surprises on minimum wage adjustments could hawkishly ripple through money markets."

On the fiscal outlook, ING says "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," citing budget deficit forecasts "heading inside 4% of GDP as higher inflation drags more income tax payers into higher tax brackets." Turning to currencies, the bank observes that "EUR/GBP is holding above 0.8350 support and is looking heavy." Unless there are "any surprise budget giveaways that hit gilts," ING’s assessment is that "it looks as though EUR/GBP can stay heavy and potentially nudge down to the 0.8315 area."

Lagarde highlights upside inflation risks while retaining a measured Euro stance

At 6.2/10, the FXS Speechtracker score sits just above the speaker’s historical baseline of 6.1/10, indicating communication that carries slightly greater impact while remaining balanced. Lagarde recognised that the Euro area economy is growing in Q3, with AI investment, public spending and stronger exports expected to support growth in the near term. Nevertheless, she emphasised downside risks to growth, as renewed increases in energy prices, tighter financial conditions and fiscal uncertainty undermine confidence.

The inflation message is distinctly hawkish. Energy prices have exceeded the baseline, headline inflation is forecast to remain well above target over the coming quarters, and inflation risks are tilted upwards. This is despite longer-term expectations holding around 2% and the ECB wage tracker indicating wage growth of 2.5%-2.8%. However, the unanimous decision to leave rates unchanged, against a backdrop of stable underlying inflation and considerable uncertainty, points to a cautious approach guided by the data. That stance moderates the hawkish language and prevents Euro bulls from fully pricing in an imminent move towards tighter policy.

Technical Analysis: EUR/GBP stays under pressure beneath the 100-day SMA

On the daily chart, the continuing decline in EUR/GBP has left the cross well below both the 100-day simple moving average (SMA) and the middle Bollinger band, signalling a firmly bearish short-term outlook. The price is drawing nearer to support at the lower Bollinger band. Meanwhile, the Relative Strength Index (14), at around 18.6, remains deep in oversold territory, pointing to sustained selling even as the pair nears an area where that pressure could become exhausted.

Any recovery would first encounter resistance near 0.8420 at the middle Bollinger band, ahead of the upper band around 0.8512. The 100-day SMA at 0.8540 provides a further, broader constraint on rebound attempts. Immediate downside support lies at the lower Bollinger band, at 0.8325. A clear breach would pave the way for fresh lows; conversely, a recovery from this area could prompt a corrective rebound towards 0.8420.

(The technical analysis of this story was written with the help of an AI tool. Know more.)