British Pound gains against the Euro as traders assess central bank signals

• EUR/GBP edges lower as hawkish BoE remarks lend support to the British Pound.
• BoE Deputy Governor Dave Ramsden says further rate hikes could be warranted if inflation pressures keep building.
• UK growth concerns may limit Pound gains, while expectations of further ECB tightening offer support to the Euro.

EUR/GBP edges lower on Monday as the British Pound attracts buyers after recent weakness, with hawkish remarks from Bank of England (BoE) Deputy Governor Dave Ramsden lending it further support. At the time of writing, the cross trades around 0.8564, down 0.40%.

Ramsden said, “Were upside pressures on the inflation outlook to continue to build, there could be a case for increasing Bank Rate.” He said he would focus on external pressures from “energy prices, weather and supply chains,” as well as domestic risks, including “indirect effects, particularly in food prices, and any early signs of second-round effects.” He added that inflation risks, whether external or domestic, “have tilted more to the upside.”

Analysts at HSBC warn that “weak UK labour demand and sluggish private sector momentum could weigh on the GBP in the near term, particularly as the US economy is looking more resilient.” They note that “markets are already pricing around 100bp of tightening from the BoE by July 2027,” but caution that “higher energy prices create a difficult policy mix: inflation risks are rising even as growth momentum faces a challenging outlook.” HSBC adds that “the run-up to the budget update on 28 October may add further pressure, with elevated gilt yields and difficult fiscal choices ahead for the new Chancellor.”

Against this backdrop, gains in the British Pound could remain limited as concerns over UK growth persist. Meanwhile, expectations of further European Central Bank (ECB) tightening after two rate increases this year may support the Euro against the Pound.

ECB President Christine Lagarde said, “We still see upside risks to inflation and downside risks to growth.” She added, “The inflation outlook will be higher in 2027 and 2028 than we expected a few months ago,” but noted, “We see higher inflation ahead but no signs yet that it is becoming embedded.” Lagarde said the ECB considers “a measured response as appropriate to keep inflation in check.”

The focus now shifts to a busy week of central bank speakers and economic data. Traders will follow UK second-quarter Gross Domestic Product (GDP), German preliminary inflation and Retail Sales on Wednesday, before the Eurozone’s preliminary inflation report on Friday.