Germany and Eurozone GDP data awaited as Euro eases against British Pound

0.8345 is in focus as EUR/GBP slips towards that level in early European trading on Friday.
2.5% remained the ECB’s key interest rate after its October meeting.
A 25 bps increase to 4.00% in the BoE’s benchmark interest rate is widely anticipated next Thursday.

EUR/GBP slips towards 0.8345. Diverging monetary policies weigh on the cross in Friday’s early European session. Later on Friday, traders will watch Germany’s and the Eurozone’s preliminary Q3 Gross Domestic Product (GDP) readings.

A deposit rate of 2.50% was retained by the European Central Bank (ECB) at Thursday’s October policy meeting, in line with broad expectations. The decision followed September’s 25 basis points (bps) rate increase. In its statement, the Governing Council identified higher energy prices as an upside risk to inflation and a downside risk to growth. Underlying inflation and wages, however, had remained broadly stable so far.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Following the announcement, money markets assigned around a 67% probability to a December rate increase, LSEG data showed.

With the UK Autumn Budget still under assessment, traders are also preparing for forthcoming Bank of England (BoE) decisions. The United Kingdom (UK) announced a deadline for defence spending to reach 3% of Gross Domestic Product (GDP), while Finance Minister John Healey unveiled billions in aid for Ukraine in a “clear message to Moscow.” On Wednesday, Healey set 2030 as the target date for the 3% level and reaffirmed the UK’s NATO commitment to reach 3.5% by 2035.

An 11-month period with rates at 3.75% is likely to end at the BoE’s policy meeting next Thursday. The bank is expected to increase its benchmark rate by 25 bps to 4.00%.

20bp gilt risk premium in focus as UK budget shapes EUR/GBP outlook

The budget announcement could reverse part of the recent underperformance in UK government bonds, according to ING. Michiel Tukker, ING's Rates Strategist, estimates a "20bp risk premium in 10-year UK gilt yields – some of which could come out of the market during today's UK budget release." In the bank’s assessment, the budget "is not expected to have too much say on the Bank of England's tightening prospects," though it warns that "any upside surprises on minimum wage adjustments could hawkishly ripple through money markets."

On the fiscal outlook, ING says "some narrowing in the gilt-bund spread today could be a reminder that the UK looks to be one of the few G7 economies heading in the right fiscal direction into 2027," citing budget deficit forecasts "heading inside 4% of GDP as higher inflation drags more income tax payers into higher tax brackets." Turning to currencies, the bank observes that "EUR/GBP is holding above 0.8350 support and is looking heavy." Unless there are "any surprise budget giveaways that hit gilts," ING’s view is that "it looks as though EUR/GBP can stay heavy and potentially nudge down to the 0.8315 area."

6.2/10 Speechtracker score: Lagarde balances inflation risks with measured Euro stance

At 6.2/10, the FXS Speechtracker score sits just above the speaker’s historical baseline of 6.1/10. It indicates slightly stronger impact while retaining a balanced message. Lagarde recognised Q3 expansion in the Euro area economy, with AI investment, government spending and improving exports expected to support near-term growth. She nevertheless emphasised downside growth risks: renewed energy price rises, tighter financial conditions and fiscal uncertainty are undermining confidence.

Inflation commentary was distinctly hawkish. Energy prices have exceeded the baseline, headline inflation is expected to remain well above target over coming quarters, and inflation risks are tilted upwards. This is despite longer-term expectations holding around 2% and the ECB wage tracker indicating wage growth of 2.5%-2.8%. The unanimous decision to leave rates unchanged, however, was presented against stable underlying inflation and elevated uncertainty. That cautious, data-dependent approach moderates the hawkish language and prevents Euro bulls from fully pricing in an imminent shift towards tightening.

Technical Analysis: 100-day SMA Caps EUR/GBP as Bearish Bias Persists

On the daily chart, a firmly bearish near-term bias is indicated by EUR/GBP’s continued decline well below both the 100-day simple moving average (SMA) and the middle Bollinger band. The cross is moving closer to support at the lower Bollinger band. Meanwhile, the Relative Strength Index (14), near 18.6 and deeply oversold, points to sustained selling pressure even as a potential exhaustion zone approaches.

Immediate support lies at 0.8325, the lower Bollinger band. A clear break below it would pave the way for fresh lows; a rebound could instead produce a corrective move towards 0.8420. On any recovery, the middle Bollinger band near 0.8420 provides initial resistance, followed by the upper band around 0.8512. The 100-day SMA at 0.8540 adds a broader ceiling to recovery attempts.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Euro: Key Questions

The Euro at a glance

Used by the 20 European Union countries in the Eurozone, the Euro ranks behind only the US Dollar in global currency trading. Its share of all foreign exchange transactions reached 31% in 2022, with average daily turnover exceeding $2.2 trillion. The world’s most actively traded currency pair is EUR/USD, representing an estimated 30% of all transactions. Next are EUR/JPY at 4%, EUR/GBP at 3% and EUR/AUD at 2%.

The ECB’s role in Euro markets

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and managing monetary policy. Maintaining price stability is its central mandate, whether through containing inflation or encouraging growth. Interest rate increases and cuts are its main policy instrument. Higher relative rates, or expectations of rate increases, generally support the Euro; the reverse also applies. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of Eurozone national banks and six permanent members, among them ECB President Christine Lagarde.

2% inflation target: implications for the Euro

For the Euro, a key economic measure is Eurozone inflation as recorded by the Harmonised Index of Consumer Prices (HICP). Inflation above expectations, particularly beyond the ECB’s 2% target, obliges the central bank to raise rates to bring prices back under control. By making the region a more attractive destination for global investors’ funds, interest rates that are higher than those of its counterparts generally support the Euro.

Economic indicators driving the Euro

The single currency can respond to data that reveal the economy’s health. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are all capable of shaping its direction. Economic strength supports the Euro by drawing in foreign investment and potentially encouraging ECB rate increases, which directly strengthen the currency. Weak data, by contrast, are likely to weigh on the Euro. Particular weight is attached to releases from Germany, France, Italy and Spain. As the euro area’s four largest economies, they represent 75% of Eurozone economic activity.

Trade Balance and demand for the Euro

The Trade Balance is another important release for the Euro. Over a specified period, it records the difference between a country’s export earnings and its spending on imports. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods, lifting the currency’s value. A positive net Trade Balance therefore supports a currency, while a negative balance has the opposite effect.