Euro trims gains against British Pound after surprise UK GDP data
- EUR/GBP holds gains around 0.8465 in Thursday’s early European session.
- UK economy unexpectedly grew 0.1% in August.
- ECB is expected to hike rates again in December, according to a Reuters poll.
The EUR/GBP cross pares gains near 0.8465 during the early European trading hours on Thursday. The British Pound edges slightly higher following the UK economic data. The Eurozone Industrial Production data and the German Buba Monthly Report are due later in the day. Bank of England (BoE) policymaker Sarah Breeden is also set to speak.
Data released by the Office for National Statistics (ONS) on Thursday showed that the UK Gross Domestic Product (GDP) grew by 0.1% MoM in August, compared to a 0.4% growth seen in July. This figure came in stronger than market expectations of a 0.1% contraction.
Meanwhile, UK Industrial Production increased by 0.8% MoM in August, while Manufacturing Production jumped by 1.2% during the same period.
The upbeat UK GDP data provides little support to the GBP against the EUR. The latest figures came as the war in the Middle East rattles the global economy and hits British households and businesses with a surge in energy costs.
French debt concerns could weigh on the Euro. Citi analysts believe growing fiscal risks in France could prompt the European Central Bank (ECB) to pause interest rate hikes after December, or earlier if financial stress spreads across the Eurozone.
The ECB is expected to hold its deposit rate at 2.50% in October but raise it by 25 basis points (bps) in December as inflation runs nearly double its 2% target, according to a Reuters poll.
Pound support builds as BoE hike risk offsets UK budget concerns
Analysts at ING have turned more constructive on the Pound, noting that they have "lowered our EUR/GBP forecast and now expect the pair to trade in a 0.84-0.85 range for at least several more months." They argue that "idiosyncratic risks surrounding the euro are unlikely to fade anytime soon," while the BoE "has sent a clear enough signal that it is prepared to hike," creating a supportive backdrop for GBP.
ING acknowledges that "we still think BoE rate expectations are too hawkish for 2027 (100bp by July)," but concedes that "one or two hikes are looking increasingly likely." In their view, "the dovish shift may have to wait until well into 2027, underpinning GBP strength" over the medium term.
On the fiscal side, ING flags the "UK budget on 28 October" as "a potential risk for sterling, as markets are pricing in little fiscal concern." Even so, they note that "Chancellor John Healey and Prime Minister Andy Burnham have appeared mindful of market sensitivities," and while "the budget will be closely scrutinised," ING adds that "we do not currently expect it to trigger significant bond volatility or leave a lasting negative mark on GBP."
Technical Analysis: Negative outlook of EUR/GBP remains intact in the near term
In the daily chart, EUR/GBP remains under clear bearish pressure as spot holds below the 20-period simple moving average (SMA) from the Bollinger Bands and the 100-period moving average, keeping the broader trend capped. Price is trading closer to the lower Bollinger band than to the upper edge of the envelope, while the 14-period Relative Strength Index at 31.2 hovers near oversold territory, which hints at persistent downside momentum but also the risk of a short-term corrective bounce if selling fatigue emerges.
On the topside, initial resistance aligns with the Bollinger middle band SMA at 0.8520, followed by the 100-period moving average at 0.8570, with a stronger barrier at the upper Bollinger band near 0.8636. On the downside, the lower Bollinger band at 0.8410 forms the next notable support area, and a clear break beneath this level would open the way to fresh lows within the current bearish sequence.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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