Euro remains under selling pressure against British Pound on France's political turmoil
- EUR/GBP softens to near 0.8420 in Monday’s early European session.
- France’s Macron said the country felt anger and shame following widespread violence over the weekend.
- The UK employment and inflation reports will be the highlights later this week.
The EUR/GBP cross declines to around 0.8420 during the early European trading hours on Monday. Violent protests in France put pressure on the Euro (EUR) against the British Pound (GBP). European Central Bank (ECB) policymaker Frank Elderson is set to speak later in the day.
Reuters reported that French President Emmanuel Macron condemned the “shocking” violence that occurred during protests over the rising cost of living in a televised national address on Sunday, following one of France’s most severe days of unrest in recent years. France had the broadest of a series of demonstrations that took place across Europe, with Belgium, Italy and Portugal also affected.
"The weekend unrest matters for the euro mainly through French bonds rather than directly," said Kieran Williams, head of Asia FX at InTouch Capital Markets in London.
Traders brace for the UK jobs data on Tuesday, followed by the Consumer Price Index (CPI) inflation report on Wednesday. These readings are likely to help seal the deal on the first rate hike from the Bank of England (BoE) in over three years in November.
“We expect a 25-basis-point hike at the central bank’s next meeting in November. We also see another move in February,” said Bloomberg Economics chief UK economist Dan Hanson.
The UK Unemployment Rate is projected to tick up to 5.0% (3M) in August from 4.9% in the previous reading. Additionally, the headline CPI is expected to show a rise of 3.4% YoY in September, while the core CPI is forecast to show an increase of 2.7% YoY during the same period.
ECB weighs risks of falling behind the curve versus overtightening
Analysts at Rabobank note that recent commentary from ECB policymaker Wunsh underscores the central bank’s delicate balancing act. They highlight that Wunsh “confirmed that the recent rise in longer-dated yields does not necessarily prevent some further rate hikes,” suggesting that higher market rates alone will not automatically stay the ECB’s hand. At the same time, Rabobank warns that allowing inflation pressures to build unchecked “would mean the central bank has fallen behind the curve, and policymakers will be wary of making a similar mistake as the previous energy shock.” However, they caution that “acting more forcefully before such evidence materializes would meaningfully increase the risk that the ECB errs on the side of too tight monetary policy,” leaving officials to carefully judge how far additional tightening can be justified.
Bailey frustration on inflation keeps GBP supported but cautious
FXS Speechtracker scores this speech at 6.2/10, slightly below Governor Bailey’s historic 6.4/10, pointing to a marginally softer tone despite clear frustration with above-target UK inflation. Emphasis that second-round effects are still “too early” to judge, and currently “subdued” with businesses focused on cost-cutting, leans mildly dovish at the margin by downplaying an imminent wage-price spiral, which can cap aggressive GBP upside.
At the same time, comments that the UK economy is “more resilient than we expected, not as strong as we need” keep the door open to maintaining restrictive policy for longer, limiting downside for GBP. The remark that news from the Middle East is the biggest factor moving UK gilt yields underscores that near-term GBP moves may be driven more by global risk and rates dynamics than by a clear new policy signal from the Bank of England.
Technical Analysis: EUR/GBP retains a negative bias amid oversold condition
In the daily chart, EUR/GBP holds a clear bearish bias as spot remains decisively under the 100-day Simple Moving Average (SMA) and below the Bollinger Bands’ 20-day middle line. The pair is drifting toward the lower Bollinger Band, while the Relative Strength Index (RSI) at roughly 22 sits deep in oversold territory, hinting that downside pressure persists but that fresh selling may start to look stretched at these levels.
On the topside, initial resistance is located at the Bollinger Bands’ 20-day SMA around 0.8505, with the 100-day SMA at 0.8565 reinforcing a broader supply zone ahead of a stronger cap near the upper band at 0.8630. On the downside, the lower Bollinger Band at 0.8385 offers the first significant support, and a sustained break below this area would open the door to an extension of the current downtrend.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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