Euro eases against British Pound as traders look ahead to Germany and Eurozone GDP data

EUR/GBP slips towards 0.8345 as Friday’s European session gets under way.
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.

Downward pressure on EUR/GBP persists as monetary policy paths diverge, with the cross easing towards 0.8345 in early European trade on Friday. Attention now turns to the preliminary Q3 Gross Domestic Product (GDP) estimates for Germany and the Eurozone, due later on Friday.

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

Thursday’s October policy meeting saw the European Central Bank (ECB) maintain its deposit rate at 2.50%, in line with widespread 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. It added that underlying inflation and wages had remained broadly stable so far.

Following the announcement, money markets assigned around a 67% chance to a December rate increase, LSEG data showed.

The UK Autumn Budget remains under scrutiny as traders also prepare for forthcoming Bank of England (BoE) decisions. A target date for defence spending to reach 3% of Gross Domestic Product (GDP) was outlined by the United Kingdom (UK), while Finance Minister John Healey announced billions in aid for Ukraine, sending a “clear message to Moscow.” On Wednesday, Healey named 2030 as the deadline for reaching 3% and reiterated the country’s NATO commitment to achieve 3.5% by 2035.

An 11-month period with rates held at 3.75% is expected to end at the BoE’s policy meeting next Thursday. The central bank is likely to increase its benchmark rate by 25 bps to 4.00%.

Could the UK budget reshape the gilt risk premium and EUR/GBP’s drift?

The budget announcement could reverse part of the recent weakness in UK government bonds, according to ING. Michiel Tukker, the bank’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." On the monetary policy implications, ING says the budget "is not expected to have too much say on the Bank of England's tightening prospects," but warns that "any upside surprises on minimum wage adjustments could hawkishly ripple through money markets."

Turning to 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," with the budget deficit forecast to be "heading inside 4% of GDP as higher inflation drags more income tax payers into higher tax brackets." For 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."

Do Lagarde’s inflation warnings change the measured outlook for the Euro?

Lagarde’s communication remains balanced despite carrying slightly more impact: the FXS Speechtracker reading of 6.2/10 is just above her historical baseline of 6.1/10. While acknowledging that the Euro area economy is growing in Q3, she said AI investment, government expenditure and a recovery in exports should support near-term activity. However, she emphasised that growth risks remain tilted downwards, with renewed energy price rises, tighter financial conditions and fiscal uncertainty denting confidence.

A distinctly hawkish message emerges on inflation. Energy prices have exceeded the baseline, headline inflation is projected 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 signalling wage growth of 2.5%-2.8%. Nevertheless, the unanimous decision to leave rates unchanged, against a backdrop of stable underlying inflation and considerable uncertainty, underlines a cautious approach guided by incoming data. That stance moderates the hawkish language and prevents Euro bulls from fully pricing in an imminent shift towards tighter policy.

Technical Analysis: Can EUR/GBP shake off its bearish bias below the 100-day SMA?

Selling pressure continues to dominate EUR/GBP’s daily chart, with the cross extending losses well below both the 100-day simple moving average (SMA) and the middle Bollinger band. Together, these signals point to a firmly bearish near-term outlook. As the price moves closer to support at the lower Bollinger band, the Relative Strength Index (14) stands near 18.6, deep in oversold territory. This indicates sustained selling even as the pair nears an area where that pressure could become exhausted.

Immediate downside support lies at the lower Bollinger band at 0.8325. A clear breach would pave the way for fresh lows, while a recovery from that zone could prompt a corrective move towards 0.8420. On any advance, the middle Bollinger band near 0.8420 provides the first resistance, ahead of the upper band around 0.8512. The 100-day SMA at 0.8540 adds a broader ceiling to recovery attempts.

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

Euro: Frequently Asked Questions

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

Only the US Dollar is traded more actively worldwide than the Euro, the shared currency of the 20 European Union countries in the Eurozone. The Euro featured in 31% of all foreign exchange transactions in 2022, with average daily turnover exceeding $2.2 trillion. Among currency pairs, EUR/USD leads global trading with an estimated 30% of all transactions. It is followed by EUR/JPY at 4%, EUR/GBP at 3% and EUR/AUD at 2%.

What role does the ECB play in shaping the Euro?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and overseeing monetary policy. Price stability is its central mandate, pursued by either containing inflation or supporting growth. Changes in interest rates are its main policy instrument. Higher rates relative to other economies, or expectations of an increase, generally support the Euro; lower rates tend to have the opposite effect. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of Eurozone national banks and six permanent members, among them ECB President Christine Lagarde.

Why do inflation figures matter for the Euro?

The Harmonised Index of Consumer Prices (HICP), which measures Eurozone inflation, is a key economic indicator for the Euro. An unexpectedly strong rise in inflation, particularly above the ECB’s 2% target, requires the central bank to increase interest rates to restore control over prices. By making the region a more attractive destination for global investors’ funds, interest rates that are higher than those in comparable economies generally lend support to the Euro.

Which economic releases can move the Euro?

The Euro can respond to economic releases because they reveal the health of the economy. 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 foreign investment and potentially prompting the ECB to raise interest rates, which directly strengthens the currency. Weak figures, by contrast, are likely to weigh on the Euro. Particular attention is paid to Germany, France, Italy and Spain. As the euro area’s four largest economies, they collectively represent 75% of the Eurozone economy, making their data especially important.

Why is the Trade Balance important for the Euro?

The Trade Balance is another key release for the Euro, showing the gap between a country’s export earnings and its import expenditure over 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 the currency’s value. A positive net Trade Balance therefore supports a currency, while a negative balance has the opposite effect.