Why is the Euro slipping against the British Pound as inflation data and BoE take centre stage?

• Can the Euro Recover as EUR/GBP Holds Near April 2025 Lows?
• The British Pound finds support against the Euro from French fiscal concerns and expectations of a BoE interest rate hike.
• Ahead of Thursday’s BoE decision, markets turn to PMI releases and Eurozone inflation data.

Renewed pressure on EUR/GBP has left the cross trading around 0.8336 at the time of writing, a decline of 0.11% on the day. Tuesday’s slight retreat follows modest gains on Monday, when sharply lower Oil prices helped the Euro (EUR) by easing some pressure on the energy-dependent Eurozone.

A rebound in Oil prices follows a Wall Street Journal (WSJ) report that Washington conducted limited strikes on Iran’s Qeshm Island. After shedding nearly 7% on Monday, West Texas Intermediate (WTI) is up 2.45% and trading above $97. Monday’s fall came after reports that Iran’s President said the Supreme Leader had given the government greater authority over negotiations.

Heightened concerns over France’s fiscal position continue to favour the British Pound (GBP) over the Euro, leaving the single currency close to levels last recorded in April 2025. With few economic releases scheduled for Tuesday, traders are tracking Middle East developments and changes in Oil prices.

Wednesday brings preliminary Eurozone inflation data, together with the final October Services and Composite Purchasing Managers’ Indexes (PMIs) for the Eurozone and the United Kingdom.

Those figures precede Thursday’s monetary policy announcement from the Bank of England (BoE). Expectations are widespread that the central bank will raise rates for the first time since 2023, as policymakers try to stop the Middle East energy shock from spreading into broader inflationary pressures.

The prospect of a BoE rate increase provides further backing for the British Pound relative to the Euro. If the rate rises to 4%, its differential with the ECB’s 2.50% deposit rate would increase from 125 bps to 150 basis points (bps).

Is EUR/GBP Due for Consolidation Despite Sterling’s Continued Outperformance?

ING analysts describe Sterling as “trading reasonably well,” citing market expectations that “high energy prices leave the Bank of England no alternative but to hike rates on Thursday.” Other supportive factors, they say, are that “upside economic surprises, UK fiscal policy seemingly heading in the right direction and warmer ties with the EU all seem to be helping sterling too.” ING also sees positioning as a source of support, noting that “speculators are still running reasonably large short positions in sterling, which suggests this period of sterling outperformance can continue.”

ING nevertheless considers a pause likely, observing that “EUR/GBP has come a long way very quickly – a near 4% drop in a little over a month,” and concluding that “some consolidation is probably due.” The analysts remain cautious about calling a bottom, however, arguing that with “high energy prices likely to keep expectations of higher UK policy rates in place until early next year and French budgetary problems unresolved, it is too early to expect a significant low in EUR/GBP.”