Euro gains against Pound Sterling as Oil retreats on US-Iran diplomacy

• Cheaper oil lends the Euro support, lifting EUR/GBP modestly.
• December rate hike expectations remain in focus following hawkish comments from ECB and BoE officials.
• UK and Eurozone GDP releases later this week are the next economic signals traders await.

EUR/GBP is trading around 0.8357 at the time of writing. The cross is up 0.10% on the day, maintaining a modest upward bias on Tuesday as cheaper oil helps the Euro (EUR) outpace most major currencies. Even so, it remains within a range near levels last recorded in April 2025.

West Texas Intermediate (WTI) is approaching $83 a barrel, its lowest since 31 August, with losses of about 16% so far this month. Crude continues to face pressure as prospects of a diplomatic breakthrough between the US and Iran temper concerns over renewed strikes. For the Eurozone, heavily dependent on energy imports, lower oil prices provide some relief.

French bonds are also benefiting from the improved market sentiment. From about 175 bps at its October peak, the spread between French and German 10-year yields has contracted to around 145 basis points (bps), easing pressure on the Euro. However, France’s uncertain political outlook and budget difficulties remain risks for the currency.

December rate decisions are another focus as traders weigh comments from central bankers. In an interview with Bloomberg Television, European Central Bank (ECB) Chief Economist Philip Lane said it “would be prudent indeed to hike” in December should the data remain broadly unchanged. His forecast puts year-end inflation “a little bit” above 4%, with both core and food inflation likely to accelerate.

A December rate hike also remains a possibility for Bank of England (BoE) Deputy Governor Clare Lombardelli, although she added that “equally, I don’t have enough information just yet.” At its November meeting, the BoE voted 8-1 for a 25 bps increase in the benchmark rate to 4.00%. Catherine Mann, an external MPC member, preferred a larger rise of 50 bps. This was the first rate increase since 2023. Policymakers are seeking to curb inflationary pressure from higher energy costs associated with the war in the Middle East.

The BoE’s latest guidance is still firmly hawkish, according to analysts at ABN Amro. They point out that the MPC “projected inflation to reach around 5% by mid-2027” and explicitly “signalled another increase unless the Middle East conflict is resolved.”

Thursday brings the UK’s initial estimate of third-quarter Gross Domestic Product (GDP). Updated GDP data for the Eurozone follow on Friday.