Euro trims gains against British Pound after mixed Eurozone data

• EUR/GBP trims earlier gains as mixed Eurozone data limit the Euro's upside.
• Eurozone employment stagnates in the third quarter despite steady economic growth.
• Stronger UK growth and hawkish BoE expectations lend support to the Pound.

EUR/GBP pares back some of its earlier gains on Friday as mixed Eurozone data temper the Euro’s (EUR) advance against the British Pound (GBP). The pair is still slightly higher on the day and remains stuck in a tight range near its April 2025 lows. At the time of writing, EUR/GBP trades around 0.8355 after easing from an intraday high of 0.8363.

Preliminary Eurozone data showed that Gross Domestic Product (GDP) grew 0.4% QoQ and 1.3% YoY in the third quarter, both in line with expectations. Employment was flat on the quarter, missing forecasts for a 0.2% rise after a 0.1% increase in the previous quarter. Annual employment growth slowed to 0.4% from 0.5%.

The European Central Bank (ECB) reiterated this week that it would set rates meeting by meeting as it assesses how higher energy costs feed through to prices and wages. Its latest Economic Bulletin warned that the energy shock could push inflation higher and weigh on growth, while underlying price pressures have so far remained broadly stable.

All 71 economists in Thursday’s Reuters poll expect the ECB to raise its deposit rate by 25 basis points to 2.75% in December. Most see that as the final hike of the cycle, while 25 expect another increase, most likely in early 2027.

On the UK side, the Bank of England (BoE) raised its benchmark rate by 25 basis points to 4.00% earlier this month in an 8-1 vote, with external Monetary Policy Committee (MPC) member Catherine Mann backing a larger half-point increase.

BoE Deputy Governor Clare Lombardelli said earlier this week that the “balance of risks to inflation remains to the upside.” She said the “energy shock has become more persistent,” raising the “prospect of second-round effects.”

UK rate expectations support Pound, with BoE seen moving above neutral

Strategists at Brown Brothers Harriman note that UK rate markets remain firmly priced for further BoE tightening, with the swaps curve still implying “about 70% odds of a back-to-back 25bps hike to 4.25% on December 17, and a total of 85bps of tightening over the next twelve months.” They point out that such a path “would push the policy rate well above the BoE’s estimated 2-4% neutral range, raising the risk of a sharper growth slowdown ahead.”

Nonetheless, BBH argues that “for now, resilient UK economic activity reinforces the case for additional BoE hikes, which is GBP positive, especially against EUR.”

Preliminary data released on Thursday showed that UK GDP grew 0.7% QoQ in the third quarter, up from 0.5% in the previous quarter. Annual growth accelerated to 1.9% from 1.4%. Both readings matched expectations.