EUR/GBP gathers strength to near 0.8500 on weaker UK GDP data
- EUR/GBP strengthens to near 0.8495 in Thursday’s early European session, up 0.27% on the day.
- UK GDP contracted 0.3% MoM in April, weaker than expected.
- ECB’s Lagarde said the central bank is in a good position on interest rates, but hinted at a rate pause.
The EUR/GBP cross gains momentum to around 0.8495 during the early European session on Thursday. The Pound Sterling (GBP) weakens against the Euro (EUR) after the release of UK growth numbers. The attention will shift to the speeches from the European Central Bank (ECB) policymakers, who are set to speak later on Thursday.
Data released by the Office for National Statistics (ONS) on Thursday showed that the UK economy contracted 0.3% MoM in April, compared to an expansion of 0.2% in March. This figure came in worse than the estimation of a 0.1% decline in the reported period.
Meanwhile, the monthly Industrial Production fell by 0.6% in April versus -0.7% prior. This reading came in below the market consensus of -0.5%. The GBP attracts some sellers in an immediate reaction to the downbeat UK GDP data.
The weaker-than-expected UK GDP data, along with the soft UK employment data released earlier this week could increase market expectations that the Bank of England (BoE) will cut interest rates by more than investors had projected earlier. This might exert some selling pressure on the GBP in the near term.
On the Euro front, the hawkish remarks from the ECB could lift the shared currency. ECB President Christine Lagarde said after the policy meeting that the central bank might be approaching the end of the easing cycle. Lagarde further stated over the weekend that the central bank rates are now in a "good position" despite the extremely high uncertainty being triggered by Trump's tariff threats.
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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