Euro gains slightly against British Pound but remains range-bound amid market caution

EUR/GBP remains on course for a second weekly recovery after rebounding from lows of 0.8350.
While rising oil prices restrict the Euro’s upside, hawkish remarks by ECB officials offer support.
Persistently elevated price pressures are confirmed by inflation readings across Eurozone member countries.

Risk appetite is weakening on Friday as prospects for a Middle East peace agreement recede and oil prices rebound from two-month lows. Against this backdrop, the Euro (EUR) is registering modest gains against the British Pound (GBP). Holding firmly above 0.8350, EUR/GBP is heading for a second straight weekly rise. However, its apparent inability to push beyond 0,8370 keeps the wider bearish trend intact.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

With diplomatic efforts to end the Middle East conflict making no headway, investors have lost their appetite for risk on Friday. Hopes of a breakthrough suffered a further setback on Thursday when US President Donald Trump said that “we do not need a deal with Iran”. For its part, Tehran maintained conditions that the US had already rejected as unacceptable.

How is the oil price rebound weighing on the Euro?

As expectations of a quick end to the conflict faded, Brent Oil climbed 3.7% on Thursday to just above $95.00, before slipping to $94.15 on Friday. Although crude remains about 17% below last week’s peaks, worries that developments in the Middle East could worsen before improving are likely to underpin oil prices and limit the Euro’s gains.

Support for the Euro also came from European Central Bank (ECB) policymakers, who again voiced concerns over elevated inflation pressures earlier on Friday. Their comments strengthened the argument for a December interest rate increase.

Among the latest economic releases, Germany’s annual wholesale price growth quickened from 8.7% in September to 8.8% in October, even as the monthly figure indicated some easing. France’s Consumer Price Index (CPI) moderated more than anticipated, whereas Spanish inflation was unchanged. Inflation in both France and Spain remained well above the ECB’s 2% target.

Little is scheduled on the UK economic calendar for Friday. The NIESR Gross Domestic Product (GDP) Estimate, due later in the day, is the only notable release and is unlikely to materially influence the Pound.

Euro: frequently asked questions

Which countries use the Euro, and how widely is it traded?

Used by the 20 European Union countries within the Eurozone, the Euro ranks second only to the US Dollar among the world’s most traded currencies. Its share of all foreign exchange transactions stood at 31% in 2022, while average daily turnover exceeded $2.2 trillion. With an estimated 30% share of all transactions, EUR/USD is the world’s most actively traded currency pair. Next are EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What role does the ECB play in determining the Euro’s value?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and overseeing monetary policy. Maintaining price stability is its principal mandate, whether through containing inflation or encouraging growth. Changes in interest rates are its main policy instrument. The Euro generally benefits when rates are relatively high or are expected to rise; the opposite also holds. Monetary policy is decided by the ECB Governing Council, which meets eight times a year. The heads of the Eurozone’s national banks and six permanent members take these decisions. Those permanent members include ECB President Christine Lagarde.

Why do inflation readings matter for the Euro?

An important economic measure for the Euro is Eurozone inflation, tracked through the Harmonised Index of Consumer Prices (HICP). A stronger-than-expected rise in inflation, particularly beyond the ECB’s 2% target, requires the central bank to increase interest rates to bring price pressures back under control. When the region’s interest rates are relatively high compared with those elsewhere, the Euro usually gains support. This is because higher rates make the region a more attractive destination for global investors’ funds.

What can economic releases signal for the Euro?

By indicating how healthy the economy is, data releases can affect the Euro’s performance. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that can steer the single currency. Economic strength supports the Euro by drawing in additional foreign investment. It may also prompt the ECB to raise interest rates, directly strengthening the currency. Conversely, weak economic figures are likely to weigh on the Euro. Particular attention is paid to figures from Germany, France, Italy and Spain, the euro area’s four largest economies. Together, they represent 75% of the Eurozone economy.

Why is the Trade Balance important for the Euro?

The Trade Balance is another important release for the Euro, showing the gap between a country’s export earnings and its spending on imports during a specified period. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods, lifting its value. A positive net Trade Balance therefore strengthens a currency, while a negative balance has the reverse effect.