EUR/GBP softens to near 0.8650 amid no progress on Russia-Ukraine peace deal
- EUR/GBP weakens to near 0.8660 in Monday’s early European session.
- The upbeat flash UK PMI data support the Pound Sterling.
- ECB’s Lagarde said the Europe labor market is in surprisingly good condition.
The EUR/GBP cross loses ground to around 0.8660 during the early European session on Monday. A slew of better-than-expected UK economic data provides some support to the Pound Sterling (GBP) against the Euro (EUR). Traders will take more cues from the IFO Survey from Germany for fresh impetus, which will be released later on Monday.
The upbeat preliminary UK S&P Global Purchasing Managers’ Index (PMI) data for August and hot UK July inflation data diminish the odds of the Bank of England (BoE) rate cuts this year. This, in turn, boosts the GBP and acts as a headwind for the cross. Data published this week showed that the UK Composite PMI increased at a faster-than-expected rate to 53.0 owing to strong growth in the services sector.
Meanwhile, the UK Consumer Price Index (CPI) data for July revealed that both headline and core CPI rose at a faster-than-expected rate of 3.8% year on year. The UK central bank cut the interest rates from 4.25% to 4.0% earlier this month as the UK central bank resumed what it describes as a “gradual and careful” approach to monetary easing. A quarter-point cut is not fully priced in until March 2026.
On the Euro front, the lack of progress in Russia-Ukraine negotiations weighs on the shared currency. Russia’s Foreign Minister Sergei Lavrov said over the weekend that there was no agenda for such a summit. “Putin is ready to meet with Zelenskyy when the agenda would be ready for a summit. And this agenda is not ready at all,” he said. Persistent conflict between Russia and Ukraine implies higher energy costs and increases geopolitical uncertainty in the Eurozone, which generally exerts some selling pressure on the EUR.
Nonetheless, rising bets that the European Central Bank (ECB) will keep interest rates on hold next month might help limit the EUR’s losses. ECB President Christine Lagarde said on Saturday that Europe’s labor market has held up far better than expected despite soaring inflation and steep interest-rate hikes in recent years.
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.