EUR/GBP strengthens to near 0.8750 on upbeat German Industrial Production data
- EUR/GBP trades in positive territory around 0.8750 in Monday’s early European session.
- German Industrial Production rose 1.8% MoM in October, better than the estimates.
- BoE is expected to cut interest rates in the next meeting on December 18 to support weakening job market conditions.
The EUR/GBP cross gains traction to near 0.8750, snapping the three-day losing streak during the early European trading hours on Monday. The Euro (EUR) edges higher against the Pound Sterling (GBP) after the German Industrial Production data. The Eurozone Sentix Investor Confidence report is due later on Monday.
Data released by Destatis on Monday showed that Germany’s Industrial Production climbed by 1.8% over the month in October, versus an increase of 1.3% in September. This figure came in stronger than the market expectation of a 0.4% decline. The EUR attracts some buyers in an immediate reaction to the upbeat German Industrial Production report.
Furthermore, rising expectations that the European Central Bank (ECB) is done cutting interest rates could lift the EUR against the GBP in the near term. Financial markets project that rates will be kept on hold at the upcoming policy meeting and have significantly reduced expectations for cuts in 2026. Earlier on Monday, ECB board member Isabel Schnabel said that she is comfortable with investor bets that the central bank’s next interest-rate move will be an increase.
Signs of a weakening UK economy and the UK Autumn November budget have reinforced bets for a December rate cut from the Bank of England (BoE). This, in turn, weighs on the GBP and acts as a tailwind for the cross. UK Prime Minister Keir Starmer emphasized the need to bring inflation and interest rates down to boost business investment and economic growth. The UK central bank is expected to cut its interest rates by 25 bps to 3.75% in the monetary policy announcement on December 18 amid a cooling UK job market.
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.