EUR/GBP edges lower as Pound rebounds, Euro weighed by weak activity

• EUR/GBP edges lower toward 0.8810 on Thursday, weighed by a rebound in the Pound despite a fragile UK macro backdrop.
• Pound Sterling sentiment improves even as UK data remain soft, while markets strongly price in a December rate cut by the BoE.
• In the Eurozone, continued weakness in activity, highlighted by falling Construction Output, keeps the Euro under pressure.

EUR/GBP trades lower around 0.8810 on Thursday at the time of writing, down 0.25% on the day as the Pound Sterling (GBP) gains ground. The move comes despite a still-uncertain UK economic outlook, with buyers returning to the British currency after Wednesday’s sharp sell-off.

Pound Sterling’s rebound is unfolding in a context where dovish expectations surrounding the Bank of England (BoE) continue to build. The UK Consumer Price Index (CPI) for October confirmed that inflation pressures eased in line with expectations, reinforcing market bets on a rate cut at the December meeting. According to interest rate futures, the chance of a 25-basis-point cut towards 3.75% has now risen to 85%, up from 80% before the data release.

Markets had already been unsettled by recent UK labour market figures, which showed the unemployment rate rising to 5% over the three months to September, its highest level since early 2021. This cooling labour market, combined with ongoing disinflation, strengthens the view that the BoE may need to act soon to support the economy.

Investors will turn next to upcoming UK data, with October Retail Sales and the flash S&P Global PMI figures for November due on Friday. On the fiscal side, attention is also shifting to the November 26 Autumn Budget, amid expectations that Chancellor of the Exchequer Rachel Reeves could extend the freeze on income tax thresholds. An option the government has not ruled out.

In the Eurozone, earlier data continued to paint a picture of subdued activity. Construction Output contracted by 0.5% in September, following a downward revision of August’s figure showing a 0.2% drop. On an annual basis, the sector declined 0.3%, partially reversing the previous month’s 1% growth. These results highlight the region’s struggle to maintain momentum against a backdrop of weakening demand.

Markets now await the European Commission’s Consumer Confidence reading for November due later in the day, expected to show a 14.0 fall, which may provide further direction for the Euro if the outcome deviates from expectations.