EUR/GBP posts modest gains to near 0.8800 on BoE’s dovish hold
- EUR/GBP trades in positive territory near 0.8790 in Friday’s early European session.
- The BoE left the interest rates unchanged at 4.0%, as widely expected.
- Traders see a less than 50% possibility of further ECB rate cuts by July 2026.
The EUR/GBP cross trades with mild gains around 0.8790 during the early European session. The dovish pause from the Bank of England (BoE) weighs on the Pound Sterling (GBP) against the Euro (EUR). Traders will take more cues from the speech of the European Central Bank (ECB) policymakers later on Friday, including Joachim Nagel and Frank Elderson.
The BoE on Thursday decided to hold interest rates steady at 4.0%, citing caution ahead of the UK government’s Autumn Budget in November. BoE Governor Andrew Bailey signaled that rate reductions are coming, with economists now pricing in a pre-Christmas rate cut. The UK central bank cautioned that future rate cuts “will therefore depend on the evolution of the outlook for inflation.
Traders will closely monitor the government's Autumn Budget, which is expected to announce tax changes on November 26. Mounting political pressures surrounding UK Finance Minister Rachel Reeves and concerns about UK fiscal risks could drag the GBP lower and create a tailwind for the cross.
The cautious stance from the European Central Bank could support the EUR in the near term. ECB President Christine Lagarde highlighted that the central bank is “in a good place” and further stated it will do whatever is needed to stay in such a favorable position. Meanwhile, ECB Governing Council member Boris Vujcic said on Thursday that current policy is “in a good place” and that “we feel that we have done our job” after lowering inflation to the ECB’s target.
Traders see a less than 50% odds of further reductions by July 2026. A Morningstar analysis notes that swap markets are pricing in just a 25 basis point (bps) cut by September 2026.
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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