EUR/GBP holds positive ground near 0.8650 as UK economy stalls in July
- EUR/GBP gains ground to around 0.8650 in Friday’s early European session.
- UK GDP arrived at 0% MoM in July, as expected.
- The European Central Bank left rates unchanged at its September meeting on Thursday.
The EUR/GBP cross trades on a positive note near 0.8650 during the early European session on Friday. The Pound Sterling (GBP) remains weak against the Euro (EUR) after the release of UK Gross Domestic Product (GDP) data. Traders will take more cues from the speech from the European Central Bank (ECB) policymaker Joachim Nagel.
Data released by the Office for National Statistics (ONS) on Friday showed that the UK economy stalled in July, compared to a 0.4% growth in the previous reading. This figure came in line with the estimation. The GBP attracts some sellers in an immediate reaction to the discouraging UK GDP report.
Meanwhile, Industrial Production declined 0.9% MoM in July versus a 0.7% rise prior. This reading was worse than the market consensus of 0%. On an annual basis, the UK Industrial Production came in at 0.1% in July, following a 0.2% increase in June, weaker than the 1.1% expected.
The ECB held its rate on the so-called deposit facility at 2.0% at its September policy meeting on Thursday and maintained an upbeat view on growth and inflation. Traders raise bets that the ECB is done cutting rates, which could underpin the shared currency in the near term. Money markets are currently pricing in nearly a 40% odds of one last rate reduction by next spring, less than before the rate decision, according to Reuters.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro 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 then its currency will gain in value 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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