EUR/GBP remains above 0.8815 amid generalised Pound weakness
- Euro reversal from 0.8865 highs against the Pound finds support at 0.8815.
- Ongoing concerns about the UK's fiscal debt and weak macroeconomic data are weighing on the Pound.
- Eurozone Q3 GDP confirmed previous estimations, and the trade surplus widened in September.
The Euro-Pound rally from Monday’s lows at 0.8770 has been capped nearly 100 pips higher, at 0.8865 on Friday, with the Euro struggling amid the risk-off sentiment, although downside attempts remain contained above Thursday’s low, at 0.8815, as dismal UK data and renewed fiscal concerns keep GBP bulls in check..
The Sterling lost ground on Thursday and Friday's early trading, after a Financial Times report suggested that the UK Prime Minister, Keir Starmer, and Chancellor Rachel Reeves are considering ditching their plan to raise income tax at the November 26 Budget. This would have a positive impact on the economy, but leaves the country’s fiscal issues unresolved.
Furthermore, data released on Thursday revealed that the UK economy slowed down to levels close to stagnation in the third quarter, with Industrial and Manufacturing Production slumping, which has strengthened the case for a BoE rate cut in December.
In the Eurozone, Gross Domestic Product data released on Friday confirmed the 0.2% growth shown in previous estimations. Apart from that, the region's trade surplus widened to EUR 19.4 billion in September from August’s 1.9 billion. The impact of these figures on the Euro, however, has been muted.
Also on Friday, ECB council member, and Governor of the Bank of Latvia affirmed that the impact of US tariffs has been softer-than-expected and that interest rates will remain unchanged unless the context changes significantly.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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